Specific Human Capital Investments Research Articles

Specific Human Capital and Skills in Indian Manufacturing: Observed Wage and Tenure Relationships from a Worker Survey.

Successive Indian governments have attempted to increase the growth in employment alongside encouraging skill enhancement. Against this background, we empirically explore issues surrounding the investment in specific capital by workers. In particular, we try to discern the presence of specific human capital investment by investigating whether there is a link between tenure and wages and find that there is indeed such a link evident in India. This allows us to infer that it is valuable to have long-term relations between employers and their workers and therefore labour market institutions that support long-term employer-employee relationship need to be encouraged.

College Major Choice and Neighborhood Effects in a Historically Segregated Society: Evidence from South Africa

This paper explores factors affecting the choice of investment in specific human capital in the presence of significant inter-group and spatial inequalities. I use four years of admissions application data at an elite university in South Africa in conjunction with quarterly labor force data to trace the link between aptitude-adjusted expected earnings, neighborhood effects, and the choice of college major. The paper relies on the availability of a rich set of academic and geographical information in the admissions database to make causal inference. The results show that expected earnings have a positive impact on major choice independently of high school background when the ex ante distribution of earnings captures the full range of between-major and within-major income differentials. White applicants are more responsive to differentials in expected earnings than black applicants. Neighborhood effects influence college major choice through near-peer role models and relative achievement at the high school level.

Gender Gaps in Math Performance, Perceived Mathematical Ability and College STEM Education: The Role of Parental Occupation

Employment opportunities in occupations related to Science, Technology, Engineering, and Mathematics, the so-called STEM fields, are predicted to continue growing through time. In addition, STEM occupations also enjoy higher wages on average. Despite these advantages, women remain under-represented in STEM college degree completion and occupations. Encouraging women into the STEM fields has become an important policy concern. We use longitudinal data from the Panel Study of Income Dynamics to study gender differences in math achievement and self-perceived math ability and how they may differ by parental occupation type, specifically science related versus non-science related parental occupations. We then study their role on subsequent decision of majoring in a science field in college. Our results corroborate significant gender differences in math test scores and perceived math ability during childhood. Having a parent working in a science related field is associated with a better performance in math but not necessarily higher levels of perceived math ability, given math performance. All three factors, math achievement, perceived math ability, and parental occupation in a science field, are found to be significant predictors of the probability of majoring in science in college. However, estimated effects of higher levels of math achievement are about double for boys than for girls. Estimates of perceived math ability are also slightly larger for boys. In contrast, most of the observed positive effects of having a parent in a science related occupation seem to be concentrated among females. These results suggest a loss in STEM enrollment by otherwise qualified young women and the potential importance that parental role modeling effects or specific human capital parental investments by parents in science occupations could have for encouraging women to major in science fields.

Human capital investments as sources of skills: An analysis at different entrepreneurship phases

<strong>Background:</strong> Entrepreneurs need entrepreneurial skills to run their businesses. Skills can come from various sources, and the usage of the sources of skills can vary according to the different entrepreneurship phases.<p><strong>Aim:</strong> Adopting a human capital theory perspective, this study determined the specific human capital investments as sources of skills needed by entrepreneurs across the different entrepreneurship phases. The sources of skills included work experience, formal education, entrepreneurship education and entrepreneurship experience.</p><p><strong>Setting:</strong> Entrepreneurs at the different entrepreneurship phases which are nascent (entrepreneurs with ventures less than 3 months in existence), new business (entrepreneurs with ventures with more than 3 months but less than 3.5 years in existence) and established business (entrepreneurs with ventures more than 3.5 years in existence).</p><p><strong>Method:</strong> The study employed a survey research design. An online questionnaire was used to collect the data.</p><p><strong>Results:</strong> The results show that the sources of skills are used differently across the entrepreneurship phases. As entrepreneurs start businesses, in the nascent phase, the use of human capital investments (especially formal education) as a source of skills declines, thus creating a need to acquire more entrepreneurship-specific investments. In addition to acquiring skills from human capital investments, entrepreneurs learn skills from people in their social networks and self-taught skills which are used differently across the different entrepreneurship phases.</p><p><strong>Conclusion:</strong> The findings indicate that the human capital investments are dynamic and change over time as the entrepreneurship phases unfold. Because there are different sources of skills for each entrepreneurship phase, entrepreneurs need to be treated according to their phases.</p>

Firm Specific Human Capital Investment in an Agency Relationship

This paper considers the twofold problem of compensation contracting and the design of a human capital investment scheme. Before contracting the principal and the agent can engage in a joint stochastic production process of exerting effort to raise the agent’s productivity in the firm. The principal can employ synchronous effort exertion or either actor can assume a leadership role. We determine which organizational design is best for the principal at the endogenously optimal compensation contract, depending on how the efforts interact. We also determine when it is optimal for the principal to subsidize the agent to improve profitability.

Agency Work in Russia: To Be or Not To Be? (Experience of Russian Enterprises)

The paper reviews the development of temporary agency work in Russia using data from Russian companies in 2008—2011. The results indicate that the number of Russian firms with agency workers has increased while the share of agency workers declined in the period analyzed. Using a probit model the author investigates why firms use temporary agency work. The results of our study demonstrate that the use of agency work is characteristic mainly for small firms. Important factors for firms are also their technical state and financial position, investment in the own development, relation to particular sectors and investment in specific human capital.

The Effect of Managerial Bias on Employees' Specific Human Capital Investments

abstractContrary to the conventional belief that escalation of commitment by managers is detrimental, this study argues for its potential benefits. While firm‐specific human capital is considered a critical element of knowledge‐based resources that have the potential for superior firm performance, factors affecting the incentives for employees to make such investments are often overlooked. In the case of firms taking on risky projects, fear of project termination often reduces employees' incentives to make specific human capital investments. We argue that in this situation, the firms may find it desirable to commit to a lower probability of project termination in order to encourage the development of specific human capital by employees. Managers' escalation of commitment tendency may function as such a commitment mechanism. We find support for the key argument from the results of two experimental studies.

Human Capital Investment Effects On Firm Returns

This paper demonstrates that two measures of firm investment in specific human capital are significantly and positively correlated with long-term rates of return on investment. The final sample of 260 firms is a subset of the 805 firms included in the June 1984 edition of Forbes survey of executive compensation. We utilize two proxies for firm return-net income and cash flow. The return measures are scaled by both book value of total assets and market value of common stock yielding four alternative specifications of the rate of return measure. The firm investment in specific human capital measures are generally found to be significant explanatory variables in the regressions that have returns scaled by book value of assets. These measures of investment are insignificant when market value of common stock outstanding is used to scale the return measures. We interpret these findings to imply that a public or regulatory policy needs to be established to require firms to include at least some basic rudimentary information regarding their human capital investment, such as turnover rates and training cots, in their annual reports.

Real options and real value: the role of employee incentives to make specific knowledge investments

AbstractReal options reasoning emphasizes the strategic value of making flexible investments in a turbulent environment. Employees' investments in specific human capital are often critical to the success of a real option project, but the very flexibility that allows a firm to change course in response to new information also affects employees' incentives to make such specific human capital investments. We develop a model of real option investment that explicitly incorporates the role of employee incentives. The model suggests that the effect of investing in a real option project on employee incentives may be positive, further increasing the value of the project, or negative, sometimes more than offsetting the benefit of flexibility and resulting in reduced project value. Therefore, firms and managers should take into consideration the role of employee incentives when applying real options logic to investment decision making. Copyright © 2008 John Wiley & Sons, Ltd.

A quantitative evaluation of payroll tax subsidies for low-wage workers: An equilibrium search approach

Phelps [Phelps, E. (1994): “Low-wage employment subsidies versus the welfare state”, American Economic Review 84, 54–58.] presented the case for a low-wage subsidy policy. Since the mid-1990s, France has experimented with this strategy. This paper evaluates the effect of this policy on employment and also on output and welfare. We construct an equilibrium search model incorporating wage posting and specific human capital investment, where unemployment and the distribution of both wages and productivity are endogenous. We estimate this model using French data. Numerical simulations show that the prevailing minimum wage allows a high production level to be reached by increasing training investment, even though the optimal minimum wage is lower. We show that payroll tax subsidies enhance welfare more than a reduction in the minimum wage when they are spread over a large range of wages in order to avoid specialization in low productivity jobs.

General versus Specific Skills in Labor Markets with Search Frictions and Firing Costs

Human capital investments are not independent of the aggregate state of labor markets: frictions and slackness of the labor market raise the returns to specific human capital investments relative to general investments. We build a macroeconomic model with two pure strategy regimes. In the pure G-regime, workers invest in general skills. This occurs when they face high turnover labor markets and in the absence of employment protection. The pure 5-regime in which workers invest in skills specific to their job appears when employment protection is high enough. Implications for a characterization of Europe-United States differences are provided in conclusion.

Poverty and Children's Work in 19th and 20th Century Spain and Nowadays Developing Countries. First Results

In the first part of this paper we portray the relationship between mothers earnings, fertility and children's work in the Spanish (Catalan) context of the second half of the 19th century and the first third of the 20th century. Specific human capital investment in adult working women had as an outcome the sharp increase of their real wage and also the increase of the opportunity cost of time devoted to house work including child rearing. Fertility evolution is endogenous to the model and decreases as a result of women real wage increases. Human capital investment of labouring women and mandatory schooling of children shift the labour supply function to a new steady state in which the slope of the function is steeper. According to recent papers this model applies to 20th century Spain and it causes the abolition of children's work. Nonetheless this model do not apply to nowadays developing world. The increasing spread of the informal sector of the economy and economic inequality imply the increasing use of part time women's and children work. High income inequality and poverty, in promoting the intensive use of the mother's and children's work, are contemporaneously blocking the development of human capital, both health and education. In these countries children's work is an obstacle to human capital accumulation does not allow for overcoming the poverty trap.

Marital Status and Productivity: Evidence from Personnel Data

Although a robust wage premium for married men has been documented extensively in the labor economics literature, prior studies have been hampered in testing competing explanations of the premium by a lack of data on worker productivity. This study exploits a unique data set that contains job-performance measures for employees of a large, hierarchical organization. The quasi-longitudinal data track the marital status and job productivity, including performance reviews and promotions, of male Naval officers in technical and managerial jobs. Compared with single men, married men receive significantly higher performance ratings and are more likely to be promoted. In estimates that control for selection arising from quit decisions, the size of the marriage productivity effect falls but in most cases remains robust. Also, based on supplementary tests, selectivity arising from the decision to marry appears to explain only a small portion of the unadjusted marriage premium for Navy officers. Although the existence of a wage premium for married men has been documented extensively in the labor economics literature, the source of the premium has remained controversial. One hypothesis attributes the wage differential to economies of scale and specialization within the household, which provides incentives for additional investment in specific human capital by married men (Becker 1981). Alternative hypotheses are that the marriage premium stems from employer favoritism or that more productive or higher earning men are selected into marriage. The extensive empirical literature that has attempted to test the competing explanations has produced conflicting conclusions. However, one research approach to assess the effect of marital status that seldom has been implemented in the prior literature is to use data on the realized productivity of employees of a single firm. This study uses administrative data on male employees of a large, hierarchical organization to explore the effect of marital status on selected job performance measures. The personnel database covers male U.S. Naval officers and contains relatively detailed information on career performance, including promotion outcomes and annual performance reviews. The article seeks to shed light on the existence and magnitude of job-productivity differentials between married and single males and to assess competing explanations for marriage-related performance differentials. Navy personnel data are especially fertile for analyzing the effect of marital status on employee job productivity. Several performance measures are available for each individual, and the indicators capture performance throughout an employee's tenure rather than at a single career point. The design

The Layoff Rat Race

We investigate how discretionary investments in general and specific human capital are affected by the possibility of layoffs. After investments are made, firms may have to lay off workers, and will do so in inverse order of the profit that each worker generates. Greater skill investments, especially in specific human capital, contribute more to a firm’s bottom line, so that workers who make those investments will be laid off last. We show that as long as workers’ bargaining positions are not too weak, workers invest in specific human capital in order to reduce layoff probabilities. Indeed, workers over-invest in skill acquisition from a social perspective whenever their bargaining power is strong enough, even though they only receive a share of any investment. More generally, we characterize how equilibrium skill investments are affected by the distribution of worker abilities within firms, the probability that a firm will downsize, and the distribution of employment opportunities in the economy.

The Layoff Rat Race

We investigate how discretionary investments in general and specific human capital are affected by the possibility of layoffs. After investments are made, firms may have to lay off workers, and will do so in inverse order of the profit that each worker generates. General human capital investments lead to higher wages, but firms extract less rents from such investments, and hence tend to lay off workers who invest less in specific human capital first. In equilibrium, to reduce layoff probabilities, workers may invest in specific human capital even if they are not compensated directly for that skill investment. We characterize how equilibrium skill investments are affected by the distribution of worker abilities within firms, and the probability a firm downsizes. In bargaining settings, even though workers only receive a share of any investment, fear of layoff causes workers to over-invest in skill acquisition from a social perspective if their bargaining power is strong enough. Our analysis can reconcile the paradoxical observation that in regions with high unemployment rates, workers are highly specialized with low levels of general training.

Labor Market Institutions and the Employment-Productivity Trade-Off: A Wage Posting Approach

This paper analyzes the implications of labor market institutions and policies on the employment-labor productivity trade-off. We consider an equilibrium search model with wage posting and specific human capital investment where unemployment and the distribution of both wages and productivity are endogenous. By means of simulations of this model estimated on French data, we show that the minimum wage allows a high production level to be reached by inducing increased training investment, even if its optimal level is weaker. Considering the payroll tax subsidies implemented to lower the labor cost without removing the minimum wage legislation, we show that this policy has been welfare improving, and has been relatively well managed by spreading subsidies over a large range of wages, and not only at the minimum wage level.

Opportunistic termination of employment contracts and legal protection against dismissal in Germany and the USA

When analysing labour law most lawyers tend to focus on the protection of existing employment relations and neglect the feedback on ex ante incentives, whereas most economists focus on the incentives to create new jobs without knowing the regulations and relevant court decisions in detail. This paper starts with a simple model that discusses some potential ex post and ex ante effects of protection against dismissal and reconsiders the question of rigidity and flexibility with respect to German and US labour law. Special attention is paid to investments in specific human capital. It is shown that the legal protection against dismissal in Germany is in general characterised by relatively high expected dismissal costs with a low variance, although some court decisions have increased uncertainty for the parties to the employment contract. In the USA legal protection against dismissal is in general characterised by relatively low expected dismissal costs with a high variance, i.e. a high degree of uncertainty. This corresponds to the typical differences in employment relations between Germany and the USA with respect to external mobility, internal flexibility, capital intensity, labour productivity and long-term unemployment.

Firm-Specific Human Capital and Theories of the Firm

This paper focuses on contracting problems in firms caused by asset specificity and investment incentives, particularly the problems that arise when employees make investments in specific human capital. In such cases, employee investments will also be seriously at risk in the enterprise. Under the nexus of contracts theory of corporations, corporation law is viewed as providing a standardized solution to a central contracting problem, namely the agency problem between shareholders (who are assumed to be the owners of the firm) and their hired managers. All other relationships are seen as governed by ordinary, negotiated contracts. But where employees make important specific investments, it is no longer appropriate to assume that shareholders are, and should be, the hiring party, or the owners. A broader view of what a firm is, and what corporation law accomplishes, is needed, one that permits exploration of why one set of participants in the firm might end up with certain control rights rather than some other set. For a firm in which such firm-specific employee investments are important, one would expect, for example, to find institutional arrangements that are central to the nature of the firm and that encourage continuity in the relationships between employees and the firm, as well as give employees the means to protect their stakes. Such institutions might include unions, severance pay, and social norms of lifetime employment, together with internal job ladders, career paths, seniority rules, and direct and formal control rights. The paper then reviews several new theories that view the firm alternately as a system of incentives, or as a nexus of specific investments. In other words, they conceptualize the firm as a mechanism for governing the relationships among all the participants (those who contribute labor as well as those who contribute capital), not just the relationship between shareholders and managers.

EMPLOYEE INCENTIVES TO SPECIALIZE AND FIRM RENTS: THE ROLE OF RISK TO CORE RESOURCE VALUE.

The paper extends the resource-based view of the firm to analyze the incentives of a firm's employees to make specific human capital investments that help generate rents. It argues that these incen...

Uncertainty in Labor Productivity and Specific Human Capital Investment

Uncertainty in labor productivity (ULP) is affected by many factors, such as worker‐employer matching, technology, and macroeconomic conditions. Not surprisingly, ULP varies across firms, industries, and economies. How do variations in ULP affect specific human capital (SHC) investment, wage, and labor turnover? A fixed‐wage model is used to show that the answer depends critically on the initial level of ULP. The model is also used to show that wage and SHC are always positively correlated, but SHC investment and labor turnover do not have a monotonic relationship. These results have implications for empirical studies and public policies affecting ULP.