The Organizational Context and Performance Implications of Human Capital Investment Variability

In contrast to the traditional focus of HRD on human capital accumulations we examine the issue of variability in human capital investment. Drawing on Real Options Theory, we theorize that larger firms and firms that are faced with greater organizational risk will create a greater number of options in terms of human capital investment decisions resulting over time in greater variability in labor costs. Based on a large sample of U.S. firms and longitudinal data, we found that labor cost variability was positively related to organizational risk and firm size, but negatively related to capital intensity. These relationships were significant even after controlling for employment variability. Overall, we found that in the long term, firms with greater variability in labor costs achieved better performance. Implications for strategic HRD theory and practice are discussed.