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When firms create value with employees’ human capital, who captures this value—employees or their employing firms? This paper explains that the answer to this question depends both on the type of human capital deployed and characteristics of the labor market from which the firm hired the employees. When labor markets are highly competitive, individuals will capture more of the value their general human capital and discretionary firm-specific human capital creates, and firms and individuals will share the value created by required firm-specific and co-specialized human capital. When labor markets are less competitive, who captures the value created with a particular type of human capital depends on the reasons why the labor market is less competitive and each party’s bargaining power and negotiation skill. The paper closes with the implications of the theory developed in this paper for human resources, organizational behavior, and strategic management scholarship and practice
