A Strategy for Fat Years and a Strategy for Lean Years: Strategic Human Capital Investment Over the Business Cycle

38 Pages Posted: 8 Jul 2021

See all articles by Eirik Sjåholm Knudsen

Eirik Sjåholm Knudsen

Norwegian School of Economics (NHH) - Department of Strategy and Management

Lasse B. Lien

Norwegian School of Economics (NHH)

Robert Wuebker

University of Utah - David Eccles School of Business

Date Written: July 2, 2021

Abstract

Most prior work in strategic human capital has held the external environment stable when considering the relationship between employee mobility and employer investment. This paper relaxes this assumption. The central claim of this paper is that the business cycle alters the nature of investment problems associated with efficient investment in human capital. In a boom, the main problem is efficient investment in general human capital because the employee cannot credibly commit to staying in the firm. In a recession, the main challenge is efficient investment in firm-specific human capital because the firm cannot credibly commit to retain the employee. We show that the managerial remedies for these investment problems proposed in prior work work may be less effective, ineffective, or even counter-productive when business cycle effects are introduced. Our analysis also reveals alternative remedies firms can use to mitigate investment problems during different phases of the business cycle.

Keywords: Human capital, mobility, business cycles, firm-specific, training, investments

Suggested Citation

Knudsen, Eirik Sjåholm and Lien, Lasse B. and Wuebker, Robert, A Strategy for Fat Years and a Strategy for Lean Years: Strategic Human Capital Investment Over the Business Cycle (July 2, 2021). Available at SSRN: https://ssrn.com/abstract=3878908 or http://dx.doi.org/10.2139/ssrn.3878908

Eirik Sjåholm Knudsen

Norwegian School of Economics (NHH) - Department of Strategy and Management ( email )

Breiviksveien 40
N-5045 Bergen
Norway

Lasse B. Lien

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, 5045
Norway
+47 55959726 (Phone)

Robert Wuebker (Contact Author)

University of Utah - David Eccles School of Business ( email )

1645 East Campus Circle Drive
Salt Lake City, UT 84112-9304
United States

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