Specific Capital and Technological Variety

Abstract

Growth of technological variety offers more scope for the division of labor. And when a division of labor requires some specific training, the technological specificity of human capital grows and, with it, probably the firm specificity of that capital. We build a simple model that captures this observation. The model implies that a rising specialization of human and physical capital raises the rents in the average match between a firm and its human and physical capital. We document that in the last 40 years the firm's share of those rents has also grown, and we use the model to explain why this shift may have taken place.