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Faculty Insights

Loyal or Stuck? How Perceptions of Firm-Specific Skills Affect Employment

By Wisconsin School of Business

April 15, 2015

What influences workers to view their skills as relevant in the job market, and how do those perceptions affect their job satisfaction and loyalty to their employers?

Russell Coff
Russell Coff, Wisconsin Naming Partners Chair of Strategic Management at the Wisconsin School of Business.

To answer these questions, Joseph Raffiee, a Ph.D. student in management and human resources at the Wisconsin School of Business, and I analyzed data from a large sample of employees in two countries, Korea and the United States, to determine the conditions under which employees perceive their skills to be firm-specific, or less valuable in the job market.
Theory suggests that firm-specific human capital (FSHC)—knowledge skills, and abilities that have limited value outside a given firm—tends to limit employee mobility because a worker with skills that don’t readily transfer would likely experience a pay cut at another company.
From an employer’s perspective, FSHC provides a competitive advantage by making employees better at their jobs while making them less likely to leave. This assumes that firm specificity of a worker’s skills is objective and can be observed by employees, employers, and other firms in the labor market.
Our research shows that workers don’t think of firm-specific skills this way. Basically, workers perceive skills to be firm-specific when they feel stuck and dissatisfied in a job. Conversely, our research shows that there are several biases that influence employees to perceive their skills as transferable and therefore more valuable than in reality.
When employees perceive that the skills they acquire at a company are valued elsewhere, they respond positively and reciprocate by increasing their commitment to their employer, despite assuming that they would have more and potentially more lucrative employment opportunities elsewhere.
In addition, the longer employees work at a particular company, the more they may assume other companies operate in similar ways, leading them to perceive that their skills are transferable and perhaps more valuable than they actually are. This could have negative implications for the workers who switch companies and realize later that their skills don’t transfer.
Workers who view their skills as firm specific may seek to actively influence the employer’s perceptions of firm specificity. They may want their employers to see them as irreplaceable and say things such as, “You can’t hire anyone who knows how things work around here.”
Employers, however, generally seek to have few employees who are irreplaceable and try to actively create backups for key positions. In this context, it is unclear whether firm-specific skills lead to competitive advantages directly or if perceptions of firm specificity may be sufficient.
Read more about this topic in our article, “Micro-Foundations of Firm-Specific Human Capital: When Do Employees Perceive Their Skills to be Firm-Specific?,” forthcoming in the Academy of Management Journal.