The fair division of responsibility between worker and firm in human capital investment is an age-old debate. The widely accepted pedagogy of today’s world purports the existence of two types of human capital: general human capital and firm-specific human capital. General human capital are skills that can be translated to a wide variety of firms within an industry while firm-specific human capital is unique to the output of a worker at the current firm. It is widely accepted that firms should bear at least partial costs for investments relating to company specific training while workers are expected to shoulder full costs of general human capital investments. Although simple in theory, this idea holds nuances that become exacerbated in today’s digital workplace and call for more debate around responsibilities of costs and worker protection.
Lazear (2009) suggests a new approach to understanding the human capital investment dilemma within firms. He uses the example of a Silicon Valley business to set the stage for his theory. This company ‘provides enterprise software that does tax optimization’ and therefore requires managerial employees to have knowledge in the areas of economics, tax laws, and programming. Taken as individual components, these areas of expertise are general human capital requirements and therefore would imply a responsibility of the worker to bear full costs under the traditional school of thought. However, when one considers that the unique combination of these skills is firm specific, it becomes obvious that the burden should be shared between employee and employer. This is because the idiosyncratic obligation of law, economics, and programming knowledge needed for this job is unlikely to match other available positions on the market. This implies that involuntary job changes for workers (such as being laid off) would have a significant impact on lowering their wages at subsequent firms because their blend of abilities is extremely distinctive. The loss of potential earnings is increasing in the idiosyncrasy of the skill requirements (or skill weights) of the original firm. As more companies move towards nuanced services that require firm-specific combinations of general knowledge, it becomes important that firms take on more of the costs in developing human capital.
In understanding that it is not only the type of skill but also the exact intensity of each skill that companies require, it becomes more obvious that firms should take on a larger portion of the burden when investing in these traits. As firms require more specialized knowledge OR more specialized combinations of knowledge, they must account for the potential wage losses a worker would face if they were to lose their job. This argument is theoretically defended in Lazear (2009) and current data support this trend. While there is room for more debate and growth as technology and work environments shift, there is also a necessary need for companies to re-evaluate their investment in human capital.
Lazear, E. P. (2009). Firm‐specific human capital: A skill‐weights approach. Journal of Political Economy, 117(5), 914–940. https://doi.org/10.1086/648671