Harvesting What They Grow: Can Firms Get a Return on Investments in General Skills?

Economic theory predicts that firms will not invest in developing employees' general skills because, unlike investments in physical capital, this human capital can walk out the door at any time. Companies, however, are spending billions of dollars each year on general education and training programs. This article seeks to resolve this paradox by analyzing the reasons why it may make good business sense for firms in today's knowledge-driven economy to develop the general capabilities of the workforce, and what impact such investments have on employee turnover. The paper found that while individuals are studying under a tuition reimbursement program, turnover rates are significantly lower than for those who do not participate. Completing a degree, however, appears to increase employees' expectations as well as their employability. Whether they choose to remain with the firm is closely related to whether they receive a subsequent promotion.