The impact of general and specific human capital levels

Introduction In modern economics, it has been quite obvious that, as a prerequisite for success, firms have to design incentive methods to encourage workers to put more effort into their work. Incentive schemes, e.g. bonuses or pay-by-results, are widespread. Human resource managers, however, are preoccupied with trying to identify the “best” plan. Many different factors are involved in determining and affecting the productivity of a firm. Certainly, labour is central to this question and many studies have been made of the impact of employee motivation on productivity. Reports on the introduction of incentive schemes indicate positive economic returns to both firms and workers, ranging from 0 to as much as 43 per cent (Fein, 1973). Edwards and Heery (1985) report that when a group incentive scheme was introduced in the UK National Coal industry, worker productivity increased and industrial disputes were reduced. Even if we could find the “optimal” incentive plan, however, the question remains as to whether it would have the same impact on all the teamwork groups. Very little research has been done to identify the reasons for different results among teamwork groups operating under the same incentive plan. Keller (1986) found that, among 32 project groups in R&D firms, group cohesiveness had a positive relationship with group performance, and that it was the strongest predictor of performance. The focus of the present study is twofold: first, to determine if, from an organizational perspective, an incentive scheme increases the utility to the firm; and, second, based on Becker’s (1975) classification of general human capital (GHC) and firm-specific human capital (SHC), if workers embodying higher human capital levels represent higher productivity, compared with those of lower human capital levels.