Combined effect of human capital, temporary employment and organizational size on firm performance

Abstract Purpose – This study aims to examine how temporary employment and organizational size moderate the effect of human capital on firm performance. The authors also analyze the overall effect of human capital, temporary contracts and organizational size on firm performance. This enables them to identify which combination of these three variables leads to the highest levels of profitability. Design/methodology/approach – From a sample of 1,403 Spanish firms, the authors carry out a comparative analysis of the impact of human capital on labor productivity and return on sales among small and large companies with high and low use of temporary employment. Findings – The positive effect of human capital on return of sales is greater in large firms with low temporary employment than in small firms with high temporary employment. In addition, this positive effect is not universal because in some scenarios it is not significant. The most beneficial context is that of large companies with a high level of human capital and a low use of temporary employment. Research limitations/implications – The results should be interpreted within the Spanish manufacturing sector. Practical implications – Decisions about investment in human capital and the use of temporary workers should be taken jointly by personnel managers, in accordance with the size of the firm. If this holistic view is ignored, a full understanding of the impact of human capital on firm performance will be obscured. On the other hand, a common feature that large and small firms share is an incompatibility between human capital and temporary employment. Originality/value – Growing interest has been shown in the degree to which investment in human capital contributes to firm performance; yet limited research attention has been paid to the contextual conditions that moderate this relationship. Investment in human capital can be more beneficial in some scenarios than in others.