Perceived Firm-Specific Human Capital and Turnover: Stuck in their Heads?

Drawing on human capital theory, strategy scholars have emphasized firm-specific human capital as a source of sustained competitive advantage. In addition to its role in value creation, FSHC is thought to limit rival imitation and rent appropriation by hindering worker mobility. In this study, we explore micro-foundations of firm-specific human capital by theoretically and empirically examining how employee perceptions of firmspecific skills relate to subsequent turnover – extant literature suggests that turnover would be significantly reduced for those who feel their skills are firm specific. However, this is inconsistent with recent findings that workers who perceive their skills to be firm specific tend to be dissatisfied with their jobs and uncommitted to their organizations. We test our hypotheses using two data sources from Korea and the United States. We find no evidence that perceptions of firm specific skills decrease the likelihood of turnover (if anything, it is associated with an increase in turnover). Furthermore, there does not seem to be a difference in wages for those who leave the firm who perceive that their skills are firm specific. That is, just because employees perceive their skills to be specific, does not necessarily mean that their actual external opportunities are substantially constrained. These findings suggest that perceptions of firm-specific human capital may drive behavior in ways not anticipated by existing theory. This, in turn, may challenge the assumed relationship between firm-specific human capital and competitive advantage.