Strategic human capital management in the context of cross‐industry and within‐industry mobility frictions

Abstract

Research Summary: 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 toward internal development of human capital relative to acquisition on the external market. Managerial Summary: In the face of frictions to employee mobility both within and across industries, which we capture empirically using measures of noncompete enforceability and limited skill transferability across industries, firms tend to hire less experienced workers, such workers exhibit longer tenures, and firms invest more in their training, particularly in the development of new skills. Our findings imply that for firms operating under such complementary frictions, better hiring and internal development capabilities are particularly important for performance, while those firms without such capabilities may benefit from considering ways to circumvent the mobility frictions, including moving out of the focal state or lobbying for different noncompete laws.

Corporate social responsibility as a defense against knowledge spillovers: Evidence from the inevitable disclosure doctrine

“…First, the majority of studies has focused on institutional factors—such as the inevitable disclosure doctrine, noncompete covenants, and patent enforcement. This line of research suggests that institutional barriers play an important role in reducing the threat of knowledge appropriation by rival firms (e.g., Agarwal et al, ; Ganco et al, ; Gilson, ; Kim & Marschke, ; Marx, ; Marx et al, ; Png & Samila, ; Starr, Ganco, & Campbell, ). Another line of research focuses on firm's use of pecuniary incentives to prevent the loss of valuable knowledge (e.g., Carnahan et al, ) .…”

The Impact of Labor Mobility Restrictions on Managerial Actions: Evidence from the Mutual Fund Industry

“…This literature looks at the effect of NCCs on the innovation process (e.g. Gilson 1999, Fallick, Fleischman, and Rebitzer 2006, Marx, Strumsky, and Fleming 2009, Samila and Sorenson 2011, Marx, Singh, and Fleming 2015, and Barnett and Sichelman 2016, entrepreneurship (e.g., Stuart and Sorenson 2003a, and Stuart and Sorenson 2003b, Samila and Sorenson 2011, and Starr, Balasubramanian, and Sakakibara 2017, employee mobility (e.g., Fallick, Fleischman, and Rebitzer 2006, Marx, Strumsky, and Fleming 2009, and Jeffers 2018, firm-sponsored versus employee-paid training (e.g., Garmaise 2011, Starr, Prescott, and, Starr 2018, andStarr, Ganco, andCampbell 2018), wages (e.g., Mukherjee and Vasconcelos 2011 and Balasubramanian, Chang, Sakakibara, Sivadasa, and Starr 2018), firm's output (e.g., Bishara 2011, Bishara and Orozco 2012, Lobel and Amir 2014, and Anand, Hasan, Sharma, and Wang 2018, as well as on the firms' financial reporting choices (e.g., Chen, Zhang, and Zhou 2018). Our paper contributes to this literature by furthering our understanding of how participants of the labor force respond to NCCs.…”

The (Un) intended consequences of institutions lowering barriers to entrepreneurship: The impact on female workers

“…Second, our study contributes to recent debates about the critical importance of retaining highly valuable workers, often central to creating and sustaining a firm's competitive advantage (e.g., Coff, ; Flammer and Kacperczyk, ; Ganco et al, ; Harris and Helfat, ; Mawdsley and Somaya, ; Starr et al, ). Multiple studies in this vein have documented that startups threaten incumbents by decreasing retention of valuable talent and therefore a firm's know‐how (Agarwal et al, , Ganco, Ziedonis, and Agarwal, 2015), if workers decide to “walk out the door,” taking with them the most valuable knowledge assets to startup firms (Agarwal et al, 2016).…”

“…Second, we extend research on institutions and entrepreneurship (e.g., Eberhart et al, ; Eesley, ), by documenting not only the intended but also the unintended consequences of such regulations, and examining how such effects might vary with employee gender. Finally, our study contributes to the discussions in strategic human capital, focused on the critical role of human capital in creating and sustaining a firm's competitive advantage (e.g.,Harris and Helfat, ; Mawdsley and Somaya, ; Starr, Ganco, and Campbell, ). Whereas past research has documented that startups threaten incumbents by decreasing retention of valuable talent and therefore a firm's know‐how (Agarwal et al, ; Ganco, Ziedonis, and Agarwal, 2015), our research identifies yet another way in which startups' entry might pose a challenge to incumbents: by decreasing the productivity or influence of certain groups of workers.…”