Strategic Labor Hoarding: Firm Responses to Exogneous Human Capital Slack
Knudsen & Lien (in progress) Strategic Labor Hoarding
What determines if a firm decides to retain an employee with idle capacity following a negative exogenous shock? And what determines which alternative use cases the idle capacity is reallocated? This is what we set out to do in this conceptual paper.
The strategy and organization literature argues that up to a point, organizational slack is beneficial because it fosters dynamic efficiency and innovation. We analyze situations where exogenous shocks increase slack in human resources above the planned level, e.g. above the levels that under normal circumstances would be considered consistent with dynamic efficiency. We argue that under certain circumstances such excessive slack will induce a boost to development activities, while under different circumstances it will not. Our analysis concerns when and why one or the other will happen, and what kind of development is most reasonable to expect.
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