Strategic Human Capital Management in the Context of Cross-Industry and Within-Industry Mobility Frictions

Abstract

We develop and test a theory examining how frictions that restrict mobility across industries and frictions constraining mobility within an industry can co-occur to effectively isolate individual human capital, ultimately changing the firm’s make-versus-buy decision for human capital. Empirically, we demonstrate that when cross-industry frictions in the form of limited skill transferability and within-industry frictions in the form of noncompete enforceability are both present employees exhibit longer tenures, firms hire workers with less initial experience, firms change the amount and nature of training provided, and wages marginally increase. These findings suggest that sufficiently strong and complementary mobility frictions shift the emphasis of firms’ human capital management practices towards internal development of human capital relative to acquisition on the external market.

Keywords: Employee mobility, Industry Specific Human Capital, Strategic human capital, Covenants Not to Compete, Labor Market Frictions

JEL Classification: J2, J3, J4, J6, K3, L41, M5