Firm-Specific Human Capital


Firms can hold up their workers. Imagine that you are a highly productive employee because you have mastered a manufacturing process vital to your company. What if, however, no company but yours uses this manufacturing process? If your company fired you, your skills would not be transferable.

Experience is one of the rewards most employees get from working. Experience increases what economists call a person’s “human capital,” which measures a worker’s worth. Usually, the greater your human capital, the higher your wage. If your human capital is company specific, however, then you might not get paid what you are worth.

For example, imagine that today you are worth about $50,000 a year to many companies in your field. You are considering working for Acme. Acme provides great training, and after three years you will be worth $100,000 a year to Acme and many other firms. This means that after three years, Acme will have to pay you at least $100,000, or else you will quit for a higher paying job.

Now imagine that Acme’s training is job specific. After three years, you will still be worth $100,000 a year to Acme, but only $50,000 to other companies. Perhaps Acme will teach you how to run its unique computer system. If, after three years, Acme pays you only $52,000, then you will be unable to find another company that will pay you more. Employees should always be cautious of working for a business where the experience they gain would not be transferable to other companies.

Of course, there is an advantage to having firm-specific skills: You are harder to replace. If your skills aren’t transferable to other companies, then your firm couldn’t easily train someone from another company to do your job.




Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
Game Theory at Work(c) How to Use Game Theory to Outthink and Outmaneuver Your Competition
ISBN: N/A
EAN: N/A
Year: 2005
Pages: 260

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