The Effects of Relational and Firm-Specific Human Capital on Employee and Firm Value Appropriation

Extant theory suggests firm-specific human capital influences the share of value appropriate by firms and employees. However, when critical firm resources are the employees themselves, employee-firm bargaining power may deviate from existing theoretical predictions. In knowledge-based service industries, professional employees may have a bargaining power advantage due to the portability of their human capital. However, I suggest that another important source of value in knowledge-based services – strong client relationships – leads to another form of human capital that is often overlooked in extant literature, that of relational-specific human capital, which when combined with higher or lower levels of firm-specific human capital moderates the respective bargaining power advantages of firms and employees in important ways. I theoretically argue that employees can leverage the underlying social mechanism of relational-capital to offset firm bargaining power advantages stemming from higher levels of firm-specific human capital. Similarly, I posit that firms can leverage the low transfer value of relational-specific knowledge held by the employee to offset employee bargaining power advantages when the firm-specific contribution to human capital is lower. Finally, I examine how relative status differences between firms and clients conditions the bargaining power gains or losses from the interaction of relational-specific and firm-specific human capital.