Human Capital and Skill Specificity

Two recent papers, Neal (1995) and Parent (2000) have presented evidence in favour of the importance of industry specific human capital. The authors argued that some or all of the previous evidence on firm specific capital may in fact have been spurious, due to a correlation between firm and industry specific capital. The evidence in Neal (1995) is an indirect method of detecting industry specific capital using the Displaced Worker Surveys. It is indirect because there is no measure of industry tenure. The method is based on a comparison of wage changes for industry switchers compared with industry stayers after displacement. In this paper we argue that rather than being specific to industry, human capital is specific to a small number of basic skills. Using the same methodology and data sources as Neal (1995) we find that when skill status is taken into account there is little evidence of industry specific human capital. The evidence instead is more consistent with basic skill specific human capital.