Industry-specific Human Capital Research Articles

Built to Last: A Human Capital Resource Formation Perspective on Diversity and New Venture Survival

New venture team diversity and entrepreneurial success or failure remain critical topics in the field. Utilizing a strategic human capital resources framing, this study leverages data from the Kauffman Firm Survey to assess the degree to which racial diversity and human capital within the founding team affect new venture survival. In a study of 2,459 ventures, results indicate that industry-specific human capital (ISHC) moderates the relationship between racial diversity in the founding team and hazard of failure. The relationship is such that for teams with a high level of ISHC, racial diversity helps reduce the likelihood of entrepreneurial failure. Similar results did not hold for generic human capital (GHC) operationalized as percentage of team members with a bachelor’s degree; however, an effect was demonstrated when the measure used the percentage of team members with a master’s degree or higher. In addition, the three-way interaction between ISHC, GHC and racial diversity is significant, suggesting that teams benefit most from diversity when human capital stocks are high in the team. This result supports human capital resources theory by demonstrating the utility of the emergence of complex unit-level resources within the new venture team. Implications suggest that the make-up of the founding team plays a role in venture performance and that potential challenges associated with diverse teams may be countered with higher levels of human capital.

RCT evidence on differential impact of US job training programmes by pre-training employment status

While the recent evidence around the effectiveness of job training programmes has been generally positive, there has been little evidence regarding the differential impact in the U.S. by pre-training employment status. The city of New Orleans implemented a job training programme funded by the U.S. Department of labour Workforce Innovation Fund. They screened potential trainees for suitability and likelihood of completing and benefiting from training. They selected and developed curriculum with input from local firms. The city implemented the training as a randomized controlled trial. In this paper, we evaluate the impact of the training on employment, earnings, and industry of employment, both overall and separately by baseline employment status. We find overall positive effects for earnings, driven by those who did not have a job at the time of training enrolment. We also find positive employment effects for short-term unemployed workers. Individuals in the treatment group were more likely to work in the target industries, suggesting that the gains were happening through the gains in industry-specific human capital.

The Work-to-School Transition: Job Displacement and Skill Upgrading Among Young High School Dropouts

This paper examines how and why returning to education fosters recovery from negative employment shocks among high school dropouts. High school dropout remains a problem, particularly as employment is increasingly skilled over time. Exploiting a policy expanding a Norwegian vocational certification scheme in a triple difference framework, workers displaced post-expansion certify their skills at significantly higher rates relative to those displaced pre-expansion. Increases in certification post-expansion significantly reduce income losses after job loss. Certifying skills fosters recovery among early career displaced workers through the retention of relevant industry-specific human capital, which increases job stability over 20 years later.

Industry Affiliation and the Value of Portfolio Choice

Using CES earnings data, I estimate the private, risk-adjusted value of industry-specific human capital for employees in 72 industries. For each industry, I obtain the certainty equivalent income, which renders an individual indifferent between receiving and consuming this income and implementing the optimal consumption and portfolio choice decisions that solve the average Euler equations for employees in that industry. Depending on the industry of employment, every dollar initially earned is worth between 86 and 99 cents, when adjusted for the risks in industry-specific per-capita income growth, and the potential to hedge these risks with investments in the aggregate stock market. Inter-industry differences in certainty equivalent income per dollar of initial earnings can be explained by cross-sectional variation in the time series moments of the joint distribution of income growth and stock return. Cokurtosis, the tendency to generate left skewness in per-capita income growth in recessions, is as important as correlation.

The Investment Value of Fund Managers’ Experience outside the Financial Sector

Human capital acquired while working in other industries before joining fund management provides fund managers with an information advantage. Fund managers exploit this advantage by overweighting their experience industries and by picking outperforming stocks from these industries. These managers’ superior information is impounded into stock prices slowly, suggesting that their information is unique and takes a while to be discovered by the markets. Families exploit their manager’s industry-specific human capital by broadly employing their investment ideas in other funds. The investment value of industry experience is unaffected by whether or not the manager with such experience is in a team. Received August 25, 2016; editorial decision December 24, 2017 by Editor Andrew Karolyi.

Adjusting to Globalization in Germany

We study the impact of trade exposure on the job biographies of 2.4 million manufacturing workers in Germany. Rising export opportunities lead to two equally important sources of earnings gains: on the job and employer switches within the same industry. Highly skilled workers benefit the most. Import shocks mostly hurt low-skilled workers, especially when they possess lots of industry-specific human capital. They also destroy workers’ rents when separating from high-wage plants, and they leave strongly scarring effects in the event of a mass layoff. We connect our results to the growing theoretical literature on the labor market effects of trade.

Inter-industry labor flows

Using German social security data, we study inter-industry labor mobility to assess how industry-specific human capital is and to determine which industries have similar human capital requirements. We find that inter-industry labor flows are highly concentrated in just a handful of industry pairs. Consequently, labor flows connect industries in a sparse network. We interpret this network as an expression of industries similarities in human capital requirements, or skill relatedness. This skill-relatedness network is stable over time, similar for different types of workers and independent of whether workers switch jobs locally or over larger distances. Moreover, in an application to regional diversification and local industry growth, skill relatedness proves to be more predictive than colocation or value chain relations. To facilitate future research, we make detailed inter-industry relatedness matrices online available.

Workers Beneath the Floodgates: The Impact of Low-Wage Import Competition and Workers' Adjustment

I analyze the impact of a low-wage trade shock on manufacturing workers in a high-wage country, Denmark, and how they adjust to the shock over a decade across all potential adjustment margins, in the labor market and outside. My research illustrates the importance of industry-specific human capital in trade adjustment and provides initial evidence of skill upgrading at the individual level as workers re-build lost human capital through education. Employing administrative person-level panel data matched with employer data for the period 1999 to 2010, I exploit the dismantling of import quotas on Chinese textile and clothing products in conjunction with China’s accession to the WTO as a quasi-natural experiment and utilize within-industry heterogeneity in workers’ exposure to this trade shock. Results show a negative and significant impact of the low-wage import shock on workers’ future earnings and employment trajectories, which stems mainly from shortened employment at the firm that was exposed to the competition shock and subsequent difficulty in maintaining stable employment. While the service sector is the main absorber of all types of workers displaced by the import shock, recovery from the shock in service sector jobs varies greatly across workers depending on occupation, education and age. Less-educated, older and workers who had occupations with a high industry-specific skill content at the exposed firms had the worst adjustment experience. The results show that trade-induced adjustment costs are substantial and heterogeneous across workers. For some, challenges remain even after transitioning to full-time jobs outside of manufacturing, as the loss of human capital specific to their former industry remains as an important hurdle to recovery.

Market-Specific Human Capital: Talent Mobility and Compensation

Country-specific and industry-specific human capital are potentially important factors in the market for talent. In a competitive matching model, we analyze how the distribution and composition of human capital affects how the top firms and managers from one market compete with those from another, to develop an integrated market for talent. When talent has general and market-specific human capital (GHC and M-SHC) components, the matching problem becomes more complex. We derive the unique integrated market equilibrium to show how talent 'migration' (or cross-market hiring) may increase or decrease overall average productivity, compensation, and shareholder value -- compared to a constrained value-maximizing benchmark, the market equilibrium leads to 'too much' cross-market hiring. We also identify circumstances where i) no migration will occur, despite the absence of any other barrier to integration; ii) a 'brain drain' occurs, despite the migrating managers creating less value in the destination market than at home; and iii) migration is non-monotonic in M-SHC.

Too much of a good thing: Board monitoring and R&D investments

Previous studies report inconsistent findings regarding how board monitoring influences firms' research and development (R&D) intensity. This study uses agency theory and resource dependence theory to argue that there is an inverted U-shaped relationship between these two constructs. By using board capital theory, the present study also postulates that this curvilinear relationship varies depending on the firm- and industry-specific human capital of outside directors. 467 firm-year observations collected from a randomly selected sample of large public firms from high-tech industries between 2005 and 2010 largely provide empirical support for these arguments. The findings contribute to the corporate governance literature by refining the understanding of the costs and benefits associated with board monitoring. The curvilinear relationship reported herein may also help reconcile prior inconsistent findings. The results also contribute to board capital theory by emphasizing the role of outside directors' firm-specific human capital in the context of R&D investments.

Are State Workers Overpaid? Survey Evidence from Liquor Privatization in Washington State

Industry privatizations that result in exogenous job displacement of public employees can be exploited to estimate public sector wage rents. I report the findings of an original survey I administered to examine how wages of displaced government workers were affected by a 2012 privatization of liquor retailing in Washington State. Based on a panel difference-in-differences estimator I find that privatization reduced wages by $2.51 per hour or 17 percent compared to a counterfactual group of nearly identical non-displaced workers, with larger effects for women. I decompose wage losses into three rents identified in the literature: public sector rents, union premiums, and industry-specific human capital. Public sector wage premiums separately account for 85 to 90 percent of overall wage losses, while union premiums and industry-specific human capital account for just 10 to 15 percent. The results are consistent with a roughly 16 percent public sector wage premium.

No Portfolio Is an Island

The authors incorporated nonfinancial assets—industry-specific human capital, region-specific housing wealth, and pensions—into a traditional portfolio optimization and found that the optimal portfolio varies materially for different compositions of total wealth. In particular, they found that the optimal equity allocation decreases with age, riskier employment, and riskier homeownership, whereas it increases with guaranteed pension income. These results suggest that every portfolio needs to be considered in the context of an investor’s total wealth.

Specialized Human Capital, Unemployment Risk, and the Value Premium

To determine whether negative shocks to specialized human capital are priced in the cross section of stock returns, this study measures shocks to industry-specific human capital by employment growth in that industry. In industries in which employment contracts, exposure to the value factor is significantly higher than in industries in which employment expands. Cross-sectional predictive regressions and hedging portfolio returns document that stocks belonging to industries with low employment growth have higher expected returns than stocks belonging to industries with high employment growth. The return premium related to employment growth is pervasive across small, big, and micro stocks, as well as when micro stocks are excluded. The premium cannot be explained by the capital asset pricing model, but the hedging portfolio's payoffs are inversely related to that of the value-minus-growth risk factor.

Unemployment and house price crises: Lessons for Fiscal Policy from the Dutch Recession

Since the beginning of the financial crisis in 2008, the Dutch economy lost 6% of gdp relative to Germany, even though the Netherlands (unlike the GIPSI countries) did not face serious problems to finance its sovereign debt. This bad performance is explained by the interaction of fiscal policy and the housing market. This makes the Netherlands an interesting case because these effects can be analyzed in isolation of stress on financial markets. We sketch a simple overlapping generation framework. House price declines lead to a temporary drop in consumption, forcing a reallocation of labour from domestic to tradable industries. This leads to a loss in industry specific human capital, causing a jump in unemployment. The analysis yields a number of lessons for fiscal policy in the aftermath of a financial crisis and for the current EU framework for the evaluation of member states’ fiscal policy. Fiscal policy provided too little intergenerational insurance and the EU framework is an obstacle to do that.

Research Note—Industry-Specific Human Capital and Wages: Evidence from the Business Process Outsourcing Industry

Human capital is becoming more critical as the global economy becomes more information intensive and service intensive. Although information systems (IS) researchers have studied some dimensions of human capital, the role of industry-specific human capital has remained understudied. The information technology enabled business process outsourcing (BPO) industry provides an ideal setting to study returns to human capital, because jobs in this industry are standardized and many professionals in this new industry have come from other industries. We build on IS and economics literature to theorize returns to human capital in the BPO industry, and we test the theory using data for over 2,500 BPO professionals engaged in call center work and other nonvoice services (e.g., accounting, finance, human resources, etc.) in India during the 2006–2008 time period. We find higher returns to industry-specific human capital than to firm-specific and general human capital. We also find that junior-level professionals, whose jobs are relatively more standardized, have higher returns to industry-specific human capital than senior-level professionals. We discuss implications for further research and practice in the global economy where inter-industry transfers and migration of skills are becoming increasingly common.

Skill-relatedness und Resilienz: Fallbeispiel Saarland

The resilience of a region depends crucially on the extent to which industry-specific human capital can be redeployed across regional economy’s industries. To this end, we present a toolbox to analyze a region’s industrial structure, development prospects and economic resilience that highlights the human capital similarities, or skill-relatedness, among industries. The core of these analyses is the so-called industry space, a network that connects industries with similar human capital requirements. In a case study, we use this toolbox to identify the risks and opportunities for the economic perspectives and resilience of Germany’s state Saarland based on the time period 2008 to 2012. This analysis shows that one important concern for this former old-industrial region is that its traditional manufacturing base is almost unconnected in terms of skill-relatedness to the emerging high-technology activities that are central in the region’s innovation agenda.

Does Industry Affiliation Influence Wages? Evidence from Indonesia and the Asian Financial Crisis

We exploit panel data and large, abrupt, and unusual dislocations of Indonesian workers in the wake of the Asian Financial Crisis to investigate the robustness and persistence of inter-industry wage differentials (IWDs). Unobserved worker characteristics explain 36% of IWDs. IWDs persist through the post-crisis decade, although, consistent with a rent-sharing explanation, they shift alongside sectors’ terms of trade in the wake of the crisis. Agriculture pays a wage penalty, and manufacturing offers a statistically significant but small premium. Most IWDs do not seem to be driven by minimum wage laws, worker monitoring costs, the disagreeability of the work, job-specific skills, industry-specific human capital, nonwage benefits, or contracting terms.

Mutual Fund Separation and the Fama, French, Carhart Factors

I estimate a mean-variance efficient (MVE) portfolio assuming that the MVE frontier is spanned by optimal portfolios that fund managers offer to heterogeneous investors. Consistent with predictions of mutual fund separation, the estimated MVE portfolio can price the cross section of portfolios and of individual equities (and, consequently, of other anomalous portfolios such as idiosyncratic volatility) significantly better than the Fama, French, and Carhart (FFC) factors. First, the cross-sectional alphas for test portfolios drop from a significant 15.6% per year for the FFC factors to an insignificant 1.08% per year for the mutual fund separation factor. Second, the risk premia of the mutual fund separation based factor is significant after controlling for characteristics such as size and book-to-market - an important test to rule out mis-specified factors. Last, while the normal R2 are comparable, enforcing the intercept to be zero in the calculation makes the FFC R2 negative but the MVE R2 are not affected. I find that the FFC factors proxy for the MVE portfolio, but are mis-specified because paired portfolios - such as value and growth - hedge heterogeneous risks for heterogeneous investors and should be considered separately, not as a long-short factor.The evidence is consistent with mutual fund separation in an incomplete market economy with heterogeneous investors (as in Constantinides and Duffie (1996)), who hold different optimal portfolios due to different exposures to nontradable risks such as industry-specific human capital. A specification that includes aggregate consumption growth, labor income variance, and the orthogonal component of the MVE portfolio has an adjusted R2 of 84% for the FF 25 portfolios.

Too Much of a Good Thing: Board Monitoring and R&D Investment Intensity

Using insights from agency theory, we theorize an inverted U-shape relationship between board monitoring and research and development (R&D) intensity. By relying on the growing literature on board capital, we also argue that this curvilinear relationship will vary depending on the firm- and industry-specific human capital of outside directors. Our results provide empirically support for an inverted U-shape relationship and the moderating role of industry-specific human capital of outside directors on the board. We contribute to agency theory by refining our understanding of the costs and benefits associated with board monitoring.

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

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.