Investment in Human Capital and Labor Mobility: Evidence from a Shock to Property Rights

Christopher P. Clifford and William C. Gerken

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Abstract: We show that the assignment of property rights to client relationships affects employee behavior in the industry for financial advice. Our identification comes from staggered firm-level entry into the Protocol for Broker Recruiting. The protocol effectively transfers the ownership of the client relationship from the firm to the employee. We document that entering into the protocol increases employee labor mobility among member firms. Further, we find that upon protocol inclusion, employees are less likely to generate customer complaints and more likely to invest in their own general human capital, but less likely to invest in firm-specific human capital. We use detailed employee-employer matched data for the universe of financial advisors to show that these effects hold within the same job spell and across advisors within the same county at the same time. Our results suggest that limiting labor mobility may limit employee incentives to invest in human capital.

Published: January, 2019

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