Re-Thinking Competitive Advantage from Human Capital: How the Concept of Firm-Specificity has Led Theorists Astray

Abstract

There continues to be tremendous interest in human capital as a potential source of competitive advantage among firms. Indeed, knowledge can be valuable, rare and hard to imitate for a variety of reasons. However, we contend that extant theory over-emphasizes the role of firm-specificity as a condition for competitive advantage. The implicit assumption is that labor markets for general and industry-specific human capital are sufficiently frictionless that it is not possible for a firm to enjoy an advantage. Here, we adopt more realistic assumptions about labor markets and explore how firms might gain advantages. We also examine the extent to which firm-specificity serves as the barrier to mobility assumed throughout much of the literature. We conclude with a richer understanding of how and when human capital may lead to advantages and suggest a research agenda that differs markedly from current trajectories.