Investments in fi.rm-speci.c human capital have come to play a central role in the value creation for most companies and organisations as job tasks have become ever more complex and demanding to carry out. Today successful performance of essential job tasks often necessitates highly specialised knowledge and skills, thus requiring continuous updating of employee competences. This paper develops a two-period agency model to show how the threat of layoff (outsourcing of job tasks to a third party supplier) can help a company trigger or ease employee investments in .firm-speci.c human capital by creating explicit career concerns for the individual employee. Results are provided under long-term as well as short-term contracting regimes. In particular, the paper has relevance for companies operating under short-term contracting where investments in fi.rm-speci.c human capital might be profi.table yet very difficult or even impossible to induce.
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European Accounting Association 33rd Annual Congress, 2010