Exploration for human capital: Theory and evidence from the MBA labor market Report as inadecuate




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Abstract

Drawing on insights from corporate finance and personnel economics, we show that firms consider potential employees using a real options approach, much as they do when making other types of capital investment decisions. Theoretically we find that firms’ hiring decisions are influenced by the uncertainty in workers’ productivity, competition in the labor market, adjustment costs, and redeployability concerns. Firms value probationary employment arrangements that provide the option to learn about the productivity of potential hires before permanent investment occurs. Higher uncertainty and adjustment costs hinder permanent investment and increase the value of the option to learn. Greater competition for workers speeds up firm investment and increases the value of probationary employment. Higher worker redeployability leads to more investment, if firms face sufficiently low competition. We test and confirm these predictions empirically using a novel dataset with detailed recruiting information from the labor market for MBA graduates.



Item Type: MPRA Paper -

Original Title: Exploration for human capital: Theory and evidence from the MBA labor market-

Language: English-

Keywords: investment, hiring, human capital, real options, exploration, MBA labor market-

Subjects: G - Financial Economics > G3 - Corporate Finance and Governance > G31 - Capital Budgeting ; Fixed Investment and Inventory Studies ; CapacityJ - Labor and Demographic Economics > J4 - Particular Labor Markets > J44 - Professional Labor Markets ; Occupational LicensingM - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M5 - Personnel Economics > M51 - Firm Employment Decisions ; Promotions-





Author: Kuhnen, Camelia M.

Source: https://mpra.ub.uni-muenchen.de/39411/







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