Strategic Management Journal

Strat. Mgmt. J., 26: 523–539 (2005)

Published online in Wiley InterScience (www.interscience.wiley.com). DOI: 10.1002/smj.467

STRATEGIC FRAMEWORKS FOR UNDERSTANDING

EMPLOYER PARTICIPATION IN SCHOOL-TO-WORK
PROGRAMS
FRANK LINNEHAN* and DONNA De CAROLIS
LeBow College of Business, Drexel University, Philadelphia, Pennsylvania, U.S.A.

The knowledge and skills inherent in human capital are increasingly recognized as the essence
of competitive advantage. Extending the emerging literature on capability building, this paper
explores the strategic decision of participating in school-to-work programs from the transac-
tion cost and resource-based view of the firm. Using data from a national sample, we find that
both strategic perspectives help to explain decisions to participate in school-to-work activi-
ties. Our findings indicate that school-to-work programs and activities may be understood as
interorganizational strategies from a transaction cost view and evidence of a firm’s motivation
to develop human capital to build competitive advantage from a resource-based view. Impli-
cations for school-to-work public policy development in the United States and future research
are identified. Copyright  2005 John Wiley & Sons, Ltd.

It is strategically important for firms to develop
human capital, since this is the essence of com-
petitive advantage. The escalating importance of
human capital in a knowledge-based economy has
become a major strategic concern for managers.
Recent theoretical frameworks have emerged that
emphasize the importance of intangible assets such
as knowledge resources to competitive advantage
(Grant, 1996a, 1996b; Kogut, 1996). The knowl-
edge and skills generated from human capital have
been identified as part of a firm’s core capabilities
(Leonard-Barton, 1992, 1995) along with physical
systems, managerial systems, and culture. Devel-
oping human capital then is a managerial task that
provides a resource that is firm specific and not
easily imitated, thus leading to competitive advan-
tage.
Keywords: school-to-work transition; transaction costs;
resource-based view
*Correspondence to: Frank Linnehan, LeBow College of Busi-
ness, Drexel University, 101 North 33rd Street, Academic Build-
ing, Philadelphia, PA 19104, U.S.A. E-mail: linnehf@drexel.edu
Yet, cultivating firm capabilities is a complex
matter. The literature has examined capability
development from several perspectives such as
market entry decisions (Holbrook et al., 2000;
Klepper and Simons, 2000); the role of founders
in the evolution of firm capabilities (Raff, 2000);
acquisitions and the reconfiguration of capabili-
ties (Karim and Mitchell, 2000); and adaptation
and change in capabilities (Cockburn, Henderson,
and Stern, 2000). However, many questions are
still unanswered with respect to the emergence of
organizational knowledge and skills that are part
of human capital. In particular, there has been
little investigation into how capabilities such as
knowledge and skills arise in organizations (Helfat,
2000). An explanation of the emergence of firm
capabilities, such as the knowledge embedded in
human capital, will inform the strategic issue of
why some firms have better resources and capabil-
ities than others.
The purpose of this research is to extend this
emerging literature on capability building by speci-

Copyright  2005 John Wiley & Sons, Ltd. Received 23 January 2003
Final revision received 10 January 2005
524 F. Linnehan and D. De Carolis
fically examining how firms source human cap-
ital resources (Makadok, 2001). We do this by
investigating an active supply of human capital
for firms: school-to-work (STW) programs. This
source of human capital has been overlooked in the
traditional management literature. Prior research
on STW programs, found primarily in the voca-
tional and educational literatures, has focused on
the effects of these educational–business partner-
ships on students (for example, Stern et al., 1997;
Stern, Raby, and Dayton, 1992; Linnehan, 1996,
2001). Compared to these student-centered stud-
ies, there have been significantly fewer inquiries
exploring STW programs from the firm’s perspec-
tive (Bailey, 1995; Bailey, Hughes, and Barr, 2000;
Shapiro, 1999).
STW programs in the United States have largely
evolved from concerns over the adverse economic
consequences of an educational system that many
perceive has failed to adequately prepare youth for
work (Cappelli, Shapiro, and Shumanis, 1998). In
particular, the focus of these programs has been on
improving the qualifications and work prepared-
ness of high school students who have no plans
to pursue post-secondary education. Firms have
faced a serious decline in the quantity and quality
of entry-level employees (Cappelli, 1995; National
Commission on Excellence in Education, 1983).
These shortages coincided with an increase in the
knowledge and skill requirements for entry-level
positions, as firms attempted to meet the chal-
lenges of emerging global markets by enhancing
worker productivity (Fortune, 1986; Goodridge,
2001; Griffin and Fox, 2000; ABA Banking Jour-
nal, 1990).
The 1994 School-to-Work Opportunities Act
(STWOA) was intended to fund activities and pro-
grams that would bring educational and business
institutions together in a partnership to promote
and enhance student learning in both academic and
work environments. The STWOA gave flexibility
to state and local governments to seek funding for
any type of program that brought the academic and
business communities into a working partnership.
This flexibility led to the development, implemen-
tation, and growth of a multitude of activities,
programs, and educational models all falling under
the STW rubric.
Researchers have generally concluded that eco-
nomic concerns are the most common employer
incentive to participate in STW programs and these
concerns focus primarily on meeting the staffing
Copyright  2005 John Wiley & Sons, Ltd.
needs of the organization (Cappelli et al., 1998).
This self-interest assumption has influenced the
development of U.S. public policy toward school-
to-work initiatives. For example, tax incentives are
often offered to motivate businesses to participate
in STW programs. Alternatively, educators often
viewed STW programs as a vehicle to improve
the quality of education overall. Educators and
public policy-makers have assumed that business
involvement in education will improve the quality
of the educational systems by providing much-
needed resources to the schools.
In this paper, we delve deeper into the motiva-
tions of firms to participate in STW programs by
applying insights from transaction cost economics
(TCE) and the resource-based view of the firm
(RBV). From transaction cost theory, the adop-
tion of school-to-work activities may be seen as an
integration of the human capital development pro-
cess that traditionally took place outside a firm’s
boundaries, that is, in the educational system. As
such, decisions to participate in STW programs
are consistent with structural decisions and bound-
ary choices of a firm. The deterioration of the
quality of education in the United States may
be viewed as a failure of the market to produce
a quality product (i.e., qualified, entry-level job
applicants). This market failure has been the impe-
tus for the creation of hybrid structures between
schools and businesses that fall between markets
and hierarchies. As such, decisions to participate
in STW programs are consistent with structural
decisions and boundary choices of a firm. These
STW arrangements may represent interorganiza-
tional strategies with the potential to create value
for all the constituents (Tsang, 2000; Zajac and
Olsen, 1993). From this perspective, the value of
engaging in STW programs from the employer side
outweighs the cost considerations in interorganiza-
tional strategies (Zajac and Olsen, 1993).
While recognizing the relevance of a market
failures approach and the benefits of using TCE to
better understand firm STW decisions, we propose
that the basis for firm decisions to participate in
STW programs may be understood not only as
structural choices, but resource-based decisions as
well. We base this strategic explanation on the
premise that firms compete on the basis of their
capabilities and, when these capabilities are rare
and not easily imitated, they become determinants
of the firm’s competitive advantage (Barney, 1986,
1991). From this perspective, participating in STW
Strat. Mgmt. J., 26: 523–539 (2005)
 Strategic Frameworks: School-to-Work Programs
programs may be explained as a firm’s desire to
build unique human resource capabilities either
while students are in school or by ensuring that
there will be a steady, sufficient supply of qualified
applicants into the firm.
In the present study, then, we offer and test
these two perspectives of employer participation
in STW: transaction cost economics and resource-
based views. We discuss these theories and how
they are relevant to a firm’s school-to-work deci-
sion in the next section.
THEORY AND HYPOTHESES
Transaction cost economics
Transaction cost economics is a framework that
is used to study economic exchanges between
two parties (Williamson, 1975). The theory views
markets and hierarchies as structures (governance
mechanisms) that regulate these exchanges
(Williamson, 1975, 1981). Accordingly, if it is
more efficient for the firm to regulate an exchange
than the market, the firm will make a decision to
transfer the economic process to within its own
boundaries. While markets and hierarchies repre-
sent two extreme governance mechanisms, hybrid
structures fall between these opposing ends of
the continuum (Williamson, 1991). TCE hypothe-
sizes that the most efficient (least costly) structure
will ultimately be used to regulate an exchange
(Williamson, 1981, 1985).
An exchange or transaction occurs when a good
or service is transferred across a separate boundary
(Williamson, 1981). In transaction cost economic
terms, the school-to-work transition is a transac-
tion that has a cost, as the student crosses into
a firm’s boundaries. These costs include the cost
of recruitment, selection, socialization, and subse-
quent training of entry-level employees. Consistent
with TCE, the basis of the decision to take part
in STW programs is the perception that condi-
tions are such that it is more efficient for the firm
to enter into agreements with educational institu-
tions to develop high-quality applicants than to rely
exclusively on the market mechanism.
If schools fail to provide applicants who are well
prepared for work, the cost to the firm of recruit-
ment, selection, and training will increase, as qual-
ified applicants become harder to find, select, and
train. This is a signal to the firm of the mar-
ket’s inefficiency and an alternative, more efficient
Copyright  2005 John Wiley & Sons, Ltd.
525
mechanism is needed to regulate this exchange,
i.e., the preparation and hiring of new employees.
As such, we hypothesize:
Hypothesis 1: There is a negative relationship
between market efficiency and a firm’s decision
to participate in STW activities. The more inef-
ficient the market is in preparing students for
work (the poorer the quality of HS graduates),
the more the firm will participate in STW activ-
ities.
In the TCE framework, the key dimensions used
to describe transactions are frequency, uncertainty,
and the specificity of the asset involved
(Williamson, 1996). TCE predicts a direct rela-
tionship between hierarchical governance mech-
anisms and the frequency of transactions. The
greater the frequency of the transaction, the more
likely it is that the firm will internalize the pro-
cess. Increasing levels of transaction uncertainty
also serve to increase the cost of transactions. In
this event, it becomes more efficient for the firm to
take over the market mechanism by regulating the
exchange internally. Similarly, the more specific
the asset is to the firm, the more likely it becomes
that the firm is able to produce that asset more
efficiently (at lower costs) than the market, thus
providing an incentive to internalize the process
and supersede the market mechanism. In each of
these cases—high transaction frequency, environ-
mental uncertainty, and firm-specific assets—the
firm is thought to possess inherent advantages
over the market in regulating economic exchanges
(Williamson, 1981). Based on these premises, we
propose:
Hypothesis 2a: There is a positive relationship
between transaction frequency and participating
in STW activities. The more frequently a firm
hires entry-level employees, the more the firm
will participate in STW activities.
Hypothesis 2b: There is a positive relationship
between transaction uncertainty and participat-
ing in STW activities. The greater uncertainty a
firm faces in hiring entry-level employees, the
more a firm will participate in STW activities.
Hypothesis 2c: There is a positive relationship
between asset specificity and participating in
STW activities. The more specific an entry-level
Strat. Mgmt. J., 26: 523–539 (2005)
526 F. Linnehan and D. De Carolis
employee’s skills are to a firm, the more a firm
will participate in STW activities.
TCE also incorporates certain behavioral assump-
tions. In particular, individuals are assumed to act
in their own self-interest or with opportunism. This
assumption of opportunism accounts for the need
for monitoring systems and/or hierarchical struc-
tures within organizations. As such, according to
TCE, it is prudent to develop ex ante safeguards
for transactions that are subject to ex post oppor-
tunism (Williamson, 1996). If this assumption is
true, firms will establish linkages with schools and
use hierarchies to monitor and control the behavior
of entry-level employees, so as to ensure they act
in the interest of the firm.
The degree to which a firm believes entry-
level employees will act in their own self-interest
will influence its employee monitoring and con-
trol practices. The more managers believe employ-
ees will act opportunistically, the greater the need
to monitor employees. While bureaucratic struc-
tures or hierarchies may exert the most direct
control over employee behavior (and may be cre-
ated because managers believe it to be necessary),
informal social structures may also be used as con-
trol mechanisms (Ouchi, 1980). Rather than using
rules and regulations as mechanisms of control
in hierarchies, informal social structures use the
shared beliefs and values of their members.
An example of organizational structure based
on an informal social structure is self-managed
work teams. Besides being able to respond more
quickly to customer needs, these teams have the
potential of enhancing learning and commitment
to the organization (Wageman, 1997). As these
teams control their own behavior, advocating and
using self-managed work teams presupposes that
employees will not act in their own self-interest.
As such, the more managers believe opportunism
is low, the more likely it is that self-managed work
teams will be used in the organization. Alterna-
tively, if managers believe opportunism is high,
it is highly unlikely that the organization would
include self-managed work teams. Since there is a
direct, positive relationship between opportunism
and hierarchical structures, we propose:
Hypothesis 3: There is a positive relationship
between employee opportunism and a firm’s
participation in STW activities. The more a firm
Copyright  2005 John Wiley & Sons, Ltd.
uses self-managed work teams, the less the firm
participates in STW partnership activities.
A capabilities perspective
As a complement to transaction cost economics,
another way to understand firm decisions to par-
ticipate in STW partnerships is to view the deci-
sions as approaches to building inimitable human
resources. The RBV asserts that firms create value
by being more effective than their rivals at choos-
ing resources (Makadok, 2001). From a Ricardian
perspective of rent creation, a firm is able to cre-
ate economic value by acquiring resources for
less than their marginal productivity when used
in combination with its stock of other resources.
Performance differences of firms are a function
of owning resources that have differential produc-
tivity (Barney, 1986; Conner, 1991; De Carolis,
2003; Montgomery and Wernerfelt, 1988; Werner-
felt, 1984).
An extension of the RBV is the dynamic capa-
bilities (DC) approach to firm behavior (Teece,
Pisano, and Shuen, 1997). Under this framework,
creating value is a function of building capabil-
ities that yield competitive advantage. The DC
approach presents a Schumpeterian perspective of
rent creation, one that assumes that competitive
advantage is elusive and that firms must contin-
ually reinvent themselves to survive (Makadok,
2001). Thus, dynamic capabilities are the ‘firm’s
ability to integrate, build, and reconfigure inter-
nal and external competencies to address rapidly
changing environments’ (Teece et al., 1997: 516).
The DC framework echoes a basic premise in the
RBV—that the combination of firm-specific assets
heightens their level of imitability and yields a
competitive advantage. However, the process by
which assets are acquired, built, and accumulated
inside firms is still relatively unexplored (Thomke
and Kuemmerle, 2002).
Related to both of these perspectives is the
knowledge-based view of the firm (Kogut and Zan-
der, 1992; Nonaka, 1994). This perspective accen-
tuates knowledge as the most strategically impor-
tant of the firm’s resources. Firms exist because
they create, absorb, and apply knowledge in a
more efficient and effective manner than markets
(Kogut and Zander, 1992). Knowledge creation is
an individual activity and the primary role of firms
is the application of existing knowledge to the
production of goods and services (Grant, 1996a).
Strat. Mgmt. J., 26: 523–539 (2005)
 Strategic Frameworks: School-to-Work Programs
Under the assumption of individual knowledge, the
role of the firm is to integrate specialized knowl-
edge through organizational design. The manner in
which firms accomplish this creates firm-specific
capabilities that impact competitive advantage.
STW programs can be thought of as channel-
ing human capital into the organization, which
then transforms this capital into firm-specific capa-
bilities. Consistent with the above literatures, we
suggest that specific micro-level mechanisms of
capability development are the forces that direct
and unleash individual knowledge into an organi-
zational capability.
Assets that are valuable, rare, firm specific, inim-
itable, and are organized by the firm to take advan-
tage of them will lead to competitive advantage
(Barney, 1991). Firm-specific assets are critical
in the successful implementation of a strategy
as opposed to undifferentiated inputs. Firms may
acquire undifferentiated assets as substitutes for the
desired strategic input and then must adapt them
at a cost to the specific intended use.
We focus here on human asset specificity and its
adaptation to strategic uses. With respect to human
capital, firms do not gain competitive advantage
from generic human capital. Generic human cap-
ital can be rented in the market. Firm-specific
human capital is accumulated through on-the-job
learning (Dierickx and Cool, 1989). This is con-
sistent with the RBV in that assets or resources
that are combined with other firm resources lead
to superior returns.
Moreover, the knowledge-based view regards
knowledge as the ultimate basis for competi-
tive advantage while simultaneously emphasiz-
ing the criticality of how firms develop, coordi-
nate, and integrate individual knowledge. Within
the dynamic capabilities framework, Teece et al.
(1997) describe processes as one element of creat-
ing capabilities. Processes refer to the manner in
which tasks are accomplished; they are sometimes
called routines or patterns of learning (Nelson and
Winter, 1987; Teece et al., 1997).
Learning is a dynamic process that supports
capabilities (Teece et al., 1997). Although indi-
vidual skills are pertinent, their value depends
on their deployment. Learning requires common
codes of communication and joint contributions
to the understanding of complex problems (Teece
et al., 1997). For example, training programs are
an organizational mechanism that enhances learn-
ing. Firms that engage in training programs for
Copyright  2005 John Wiley & Sons, Ltd.
527
all levels of personnel may be viewed as actively
investing in developing unique knowledge, tai-
lored for that firm’s strategies. Thus, organizational
mechanisms for employee learning, such as train-
ing, job rotation, empowerment and the like, may
be viewed as a method for building firm-specific
human capital.
Related to the incentive to build firm-specific
human capital is the likelihood that companies
desire to recruit that human capital. School-to-
work activities provide an opportunity for firms to
gain access to a continuous pool of human capital.
A school-to-work program as a source of human
capital has many advantages. Firms can initiate
relationships with potential employees, can assess
individual abilities, and can establish community
relationships to ensure future pools of capital.
Hypothesis 4: There is a positive relationship
between building firm-specific human capital
and the extent firms participate in STW activi-
ties. The more firm-specific training offered, the
more a firm will participate in STW activities.
Barney’s (1986) concept of strategic factor mar-
kets suggests that the required resources for a
firm’s strategy may be bought and sold in the mar-
ket for those resources. The concept of strategic
factor market has significant ramifications for strat-
egy implementation in that the size of the returns to
any given strategy depend on the cost of resources
necessary to implement them. According to the
RBV, companies want to acquire resources whose
cost to implement those resources in strategies is
less than their economic value—that is, firms are
exploiting competitive imperfections in strategic
factor markets (Barney, 1986).
School-to-work initiatives are a way for firms
to acquire human capital at a relatively inexpen-
sive cost, yet the deployment of this resource could
bring potential returns in excess of that cost. How-
ever, firms would not want to acquire a resource
that does not have that valuable potential. There-
fore, how firms perceive how well schools in their
regional environment prepare youth for employ-
ment may impact whether or not they participate
in this factor market. An element of a firm’s posi-
tional assets are the institutions that surround them,
including educational systems (Teece et al., 1997).
As a component of this institutional environment,
local and regional schools represent a factor market
Strat. Mgmt. J., 26: 523–539 (2005)
528 F. Linnehan and D. De Carolis
for human capital. If companies perceive surround-
ing educational institutions as producing qualified
individuals with a capacity for learning, then they
would be inclined to participate in that factor mar-
ket and acquire this resource for future use—either
by itself or in combination with other resources.
Hypothesis 5: There is a positive relationship
between the quality of a firm’s factor market for
human capital and STW participation. The more
qualified entry-level candidates are for work, the
more a firm will participate in STW activities.
Physical resources such as plant, equipment, and
technical systems can determine a firm’s compet-
itive advantage. Physical systems are an element
of core capabilities (Leonard-Barton, 1992, 1995;
Teece et al., 1997). These resources are part of
the strategic positioning of firms. Accumulation of
critical physical resources builds asset stocks. In
fact, it has been suggested that a key aspect of
strategy creation is making choices about strategic
expenditures so as to accumulate competitive and
inimitable resources (Dierickx and Cool, 1989).
Companies eager to maintain competitive physical
systems would necessarily require as a comple-
mentary asset the human capital to operate these
systems. There is an interconnectedness of asset
stocks—that is, the accumulation and deployment
of one stock is related to the level of another com-
plementary stock (De Carolis and Deeds, 1999;
Dierickx and Cool, 1989). To the extent that new
physical systems are an indication of building an
inimitable asset stock, then school-to-work pro-
grams may be viewed as one type of complemen-
tary asset. Companies that exhibit a strategy of
quality production or efficiency through their phys-
ical systems are likely to be involved in school-to-
work initiatives so as to build the complementary
assets required.
Hypothesis 6: There is a positive relationship
between a firm’s inimitable asset stock and par-
ticipating in STW activities. The greater the firm
has invested in new physical assets relative to
their total physical assets, the more the firm will
participate in school-to-work activities.
The term ‘dynamic capabilities’ explicitly con-
notes change. The DC framework suggests that
competencies can be renewed to achieve con-
gruence with the changing business environment.
Copyright  2005 John Wiley & Sons, Ltd.
The framework also emphasizes the role of man-
agers in adapting and reconfiguring organizational
skills, resources, and functional competencies to
match the contingencies of a dynamic environment
(Teece et al., 1997).
At any point in time, companies must be pre-
pared and able to reconfigure their asset structure
to adapt to changing environmental demands (Lan-
glois, 1994; Teece et al., 1997). In order to do
this, firms must relentlessly scrutinize the environ-
ment and adopt new innovations and best practices.
One of the most effective ways of doing this is
through benchmarking (Teece et al., 1997). Bench-
marking is an organizational process that maintains
parity with competitors and cultivates continuous
improvement.
Companies who practice benchmarking will
adopt new procedures and practices and, accord-
ingly, require new skills. Existing employees can
learn new skills but firms can also seek a fresh tal-
ent pool so that it can more easily manipulate them
to learn a different or altered skill set. School-to-
work programs make available a fresh talent pool
that can be adapted to changing practices.
Hypothesis 7: There is a positive relationship
between reconfiguring organizational practices
and participating in STW activities. The practice
of benchmarking and the extent a firm partici-
pates in school-to-work activities will be posi-
tively related.
Similar to the above position regarding bench-
marking and school-to-work, we can postulate a
relationship between changing employee skills sets
and school-to-work. Knowledge is the underlying
component of firm success and firms exist to cre-
ate, recombine, and apply their knowledge (Kogut
and Zander, 1992). Knowledge is dynamic given
a changing internal and external environment. The
required knowledge set for a company will change.
As skill requirements transform, the firm’s knowl-
edge base must be updated as well.
School-to-work programs may be considered
avenues for skill reconfiguration. An influx of
fresh ideas and malleable talent to the company
will accommodate a company’s need for changing
skills.
Hypothesis 8: There is a positive relationship
between skill reconfiguration and the extent a
firm participates in school-to-work activities.
Strat. Mgmt. J., 26: 523–539 (2005)
 Strategic Frameworks: School-to-Work Programs
Firms that have experienced increases in skill
level requirements for entry-level employees will
participate in more STW activities than firms in
which skill level requirements have decreased or
remained the same.
METHOD
Data used to test our hypotheses were taken from
the public use file of the 1997 National Employer
Survey (NES). The 1997 NES was part of a long-
term research project originated by the National
Center on the Educational Quality of the Work-
force (EQW). This project was intended to identify
employment and educational issues from employer
perspectives (Shapiro, 1999). The 1997 survey
(NES-II) was co-sponsored by the National Cen-
ter for Postsecondary Improvement and the Con-
sortium for Policy Research in Education. It was
a follow-up to previous surveys and specifically
explored employer participation in school-to-work
partnerships. Similar to earlier surveys from EQW,
the 1997 phone survey was administered by the
U.S. Bureau of the Census and used computer-
assisted telephone interviewing to collect the data.
In the NES-II survey, the Census Bureau con-
tacted 6971 private employers from across the
United States. Of those contacted, 5400 establish-
ments agreed to participate in the survey. The
survey excluded public sector, not-for-profit orga-
nizations, corporate headquarters, and establish-
ments with fewer than 20 employees. The overall
response rate was 78 percent for partially com-
pleted interviews and 59 percent (approximately
4100) for completed interviews. The public use
database, which was used in the present study,
is a stratified sample based on two-digit industry
code and establishment size (number of employ-
ees) that consists of 3081 responses,1 all made
at the establishment level. Manufacturing estab-
lishments were oversampled in the study (59.5%
of all usable responses were from manufactur-
ing concerns), as were larger establishments (66%
of the responses were from establishments with
more than 100 employees). In the manufacturing
sector, the respondent to the survey was the plant
1
This dataset is available on the Web for research purposes
(http://www.thelearningalliance.info/Publications.php). The ini-
tial sample had oversampled establishments in five states for
other sponsor purposes. The public use file corrects for this
oversampling.
Copyright  2005 John Wiley & Sons, Ltd.
529
manager; for responses from all other sectors, it
was the local manager (Cappelli et al., 1998).
Measures
School-to-work activities
Previous research has looked at the intensity or
degree to which firms offer work-based learn-
ing activities or establish linkages with schools
(Bailey et al., 2000; Shapiro, 1999). The 1997
NES included 20 such activities that represent
these linkages. These activities or programs ranged
from establishing a formal partnership arrangement
to such activities as providing internships, youth
apprenticeships, student mentoring, participating
in school-based enterprises, developing academic
curricula, sponsoring student visits to the work-
place and/or employee visits to schools. Employers
were asked if they would sponsor or participate in
each of these activities.2 Consistent with the human
resource literature of high-performance work prac-
tices (e.g., Guthrie, 2001; MacDuffie, 1995; Way,
2002), we added the number of activities each
employer offered to create a composite intensity
index. The larger the employer’s score on this
index, the more STW activities it provided that
connected work to school. This measure is sim-
ilar to that used by Bailey et al. (2000) and was
internally consistent (α = 0.87).
Measures common to both transaction cost and
resource-based theories
Three variable measures in the RBV are identical
to measures of variables in transaction cost the-
ory: (1) firm-specific training (asset specificity in
TCE and building firm-specific human capital in
RBV); (2) quality of entry-level employees (mar-
ket efficiency in TCE and the factor market for
human resources in RBV); and (3) increasing skill
requirements of entry-level positions (asset speci-
ficity in TCE and skill reconfiguration in RBV).
The NES asked questions about training pro-
grams conducted in the establishment. These pro-
grams ranged from non firm-specific skills training
such as improving teamwork or problem-solving
skills and providing remedial skills in literacy
and arithmetic, to firm-specific instruction such as
training in sales, new equipment and the safe use
2
The responses were recoded from 1 = Yes, 2 = No, to 1 = Yes,
0 = No.
Strat. Mgmt. J., 26: 523–539 (2005)
530 F. Linnehan and D. De Carolis
of equipment and tools. We used responses to the
items concerning firm-specific training as one of
our measures of asset specificity in TCE and for
building firm-specific human capital in the RBV.
An index of the training given to three types
of employees—(1) production, (2) office/clerical/
sales/customer service, and (3) technical/technical
support—was calculated to assess the degree to
which the establishment engages in firm-specific
training. This index is the mean of the responses
(weighted by the percentage of the type of employ-
ees in the establishment) to three items (i.e., 1 =
Yes, 0 = No, multiplied by the percentage of the
establishment’s employees in each of the three cat-
egories): ‘Which of the following areas did (type
of employees) cover during their training: (1) sales
and customer service (e.g., 1 = Yes, 0 = No mul-
tiplied by the percentage of sales and customer ser-
vice employees in the establishment); (2) training
in the use of computers or new equipment; and
(3) training on the safe use of equipment and
tools.’ As such, the training composite index is the
average percentage of the establishment’s employ-
ees across each of three employee categories that
receive firm-specific training.
We measured market efficiency (TCE) and the
quality of the factor market for human resources
(RBV) as the mean of the responses to three
items assessing the quality of recent high school
graduates: ‘Based on your experience with hiring
their graduates, how would you rate your local
high schools’ overall performance in preparing stu-
dents for work in your establishment?’ The two
other questions were created from this item by
substituting ‘technical institutes’ and ‘community
colleges’ for ‘high schools.’ Responses to these
questions were made on a five-point scale, rang-
ing from 1 = Unacceptable to 5 = Outstanding.
Respondents indicating the establishment had not
hired any graduates of local high schools, technical
institutes, or community colleges, or that no one
from these institutions had applied were eliminated
from the analysis. Chronbach’s alpha for this scale
was moderate (α = 0.68).
A second measure of asset specificity in TCE
and the measure of skill reconfiguration in the
RBV was the response to an item assessing the
change in the skill level of entry-level positions
over the last 3 years: ‘During the last 3 years,
have the skills required to perform (the position
title the respondent had identified) at an acceptable
level increased, decreased or remained the same?’
Copyright  2005 John Wiley & Sons, Ltd.
We created a dummy variable from this response
indicating an increase in skills (1 = increased, 0 =
decreased or remained the same).
Unique transaction cost measures
We based our measure of transaction uncertainty
on theories of employer search models found in
labor economics (Gorter and van Ommeren, 1999;
van Ours and Ridder, 1992). In these models,
employers are seen as adopting search strategies
due to their lack of complete control over hiring
new employees and the uncertainty they face in
the time in which it takes to find new employ-
ees to fill vacancies (van Ours and Ridder, 1992).
Accordingly, we measured transaction uncertainty
as the average number of weeks the establishment
took to fill an entry-level position. The longer
it takes to hire entry-level employees, the more
uncertain this process would be for the establish-
ment. We measured transaction frequency as a ratio
of the number of 18- to 25-year-old employees
hired over the last 2 years to the total number of
employees in the establishment. Total number of
employees in this ratio was calculated from the
ranges that were used to measure the size of the
establishment (fewer than 50 = 25, 50–99 = 75,
100–249 = 175, 250–999 = 650, 1000 or more =
2000).
We used the response to the question ‘What
percentage of non-managerial and non-supervisory
employees is currently involved in self-managed
teams?’ to measure the extent to which firms
believed employees engage in opportunistic behav-
ior. Establishments that utilize these teams exten-
sively are less likely to believe employees engage
in this type of behavior.
Unique RBV measures
An establishment’s investment in new physical
assets is an indicator of its imitable asset stock.
As such, our measure for this variable is the log
of the establishment’s total assets that are less
than 4 years old. We measured asset reconfigu-
ration from the response to an item concerning
the establishment’s use of benchmarking practices:
‘Has your establishment participated in any bench-
marking programs that compare your practices and
performances with other organizations?’3
3
Response was recoded from the original survey into a dichoto-
mous variable (1 = Yes, 0 = No).
Strat. Mgmt. J., 26: 523–539 (2005)
 Strategic Frameworks: School-to-Work Programs
Controls
Company size is significantly related to the imple-
mentation of work-based activities and participa-
tion in STW partnerships (Bailey et al., 2000),
the larger the company, the more likely it is to
participate in STW. The NES II included five
dummy variables (1 = Yes, 0 = No) to designate
the establishment’s size (fewer than 50 employ-
ees, 50–99 employees, 100–249, 250–999, and
1000 or more). The ‘fewer than 50 employees’
category was omitted from the analysis and acted
as the referent category. Given that manufacturing
establishments were oversampled from the popula-
tion, a dummy variable (1 = Manufacturing sector,
0 = All other) was also used as a control in the
analyses.
The high-performance work systems (HPWS)
literature (Cappelli and Neumark, 1999; Guthrie,
2001; Way, 2002) has identified human resource
practices whose purpose is to develop human cap-
ital. Many of these practices are different from the
TCE and RBV measures. Given their importance
in the HPWS literature, we also controlled for the
presence of these work practices in our analy-
ses. Following the methodology of Way (2002),
we calculated a unitary index for HPWS by sum-
ming the scores of seven work practice compo-
nents (maximum possible score: 7). These compo-
nents are the same as those in the HPWS studies,
which have also used the NES-II data (Cappelli
and Neumark, 1999; Way, 2002). They include:
extensiveness of staffing (a composite of five
selection devices); group-based performance pay
(employer contribution to a stock option or profit
sharing plan); percentage of non-managerial/non-
supervisory employees in job rotation; percent-
age of non-managerial/non-supervisory employees
involved in regular meetings to discuss work-
related issues (Way, 2002); and the percentage of
managers and production/non-supervisory person-
nel who use computers in their jobs (Cappelli and
Neumark, 1999).4
Since employee turnover may have an impact
on the ability of the selection process or STW
activities to change the skill set of its workforce,
this variable was also included as a control and
measured as the sum of two items from the NES-II:
the percentage of permanent workforce employees
4
Way’s (2002) index also included the pay level of front-line
employees. We were not able to include this component in our
index as the public use NES-II sample eliminated this response.
Copyright  2005 John Wiley & Sons, Ltd.
531
who left voluntarily (e.g., retired or quit) and
involuntarily (e.g., fired or laid off) during that
same time period. Similarly, we also controlled
for the establishment’s use of contingent workers
(1 = Yes, 0 = No) since this source of employees
may help to enhance the talent pool and be related
to the establishment’s decision to participate in
STW activities.5
ANALYSIS STRATEGY
Descriptive statistics and correlations between all
variables were calculated initially. Hypotheses
were tested with five OLS regression models. The
first model included control variables only (size,
manufacturing establishment, human resource pra-
ctices, contingent employees and turnover). The
second model adds variables that are common to
both the TCE and RBV perspectives. These vari-
ables are training (TCE: asset specificity; RBV:
building firm-specific capital), quality of school
graduates (TCE: market efficiency; RBV: quality
of factor market for human resources), and the
increase in skill level requirements (TCE: asset
specificity; RBV: skill reconfiguration. A TCE-
only model was tested next, which added the aver-
age time to fill a position (uncertainty), the percent-
age of new hires at lower levels (frequency), and
the percentage of employees in self-management
teams (opportunism). This was followed by an
RBV-only model, which included the benchmark-
ing measure (asset reconfiguration) and the per-
centage of assets less than 4 years old (inimitable
asset stock). Finally, reflecting the complementar-
ity of the two theories, an all-inclusive model was
tested.
RESULTS
Table 1 shows the means, standard deviations, and
correlations between all variables in the study.
As expected, establishment size is significantly,
positively related to the number of STW activi-
ties offered, thus necessitating the dummy vari-
ables inclusion in the regression models. This was
also true for the other control variables. There
was a significant relation between school-to-work
5
We wish to thank an anonymous reviewer for bringing the
importance of these last three control variables to our attention.
Strat. Mgmt. J., 26: 523–539 (2005)
 532

Table 1. Descriptive statistics and pairwise correlationsa

Variable Mean S.D. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17

Copyright  2005 John Wiley & Sons, Ltd.

1. 50–99 employees 0.17 0.37
2. 100–249 employees 0.19 0.39 −0.22∗∗
3. 250–999 employees 0.30 0.46 −0.29∗∗ −0.32∗∗
4. 1000 or more employees 0.17 0.38 −0.20∗∗ −0.22∗∗ −0.30∗∗
5. Manufacturing industry 0.59 0.49 −0.06∗∗ −0.06∗∗ 0.20∗∗ 0.06∗∗
6. HRM practices 2.96 1.16 −0.07∗∗ −0.02 0.08∗∗ 0.07∗∗ −0.04
F. Linnehan and D. De Carolis

7. Use of contingent 0.66 0.47 −0.11∗∗ −0.01 0.14∗∗ 17∗∗ 0.15∗∗ 0.13∗∗
employees
8. Employee turnover 21.4 27.9 0.02 0.02 −0.02 0.01 −0.12∗∗ −0.06∗∗ −0.03
9. Firm-specific training 11.9 7.2 −0.05∗∗ 0.01 0.07∗∗ 0.10∗∗ −0.04∗ 0.24∗∗ 0.10∗∗ 0.01
10. Evaluation of school 3.2 0.59 −0.05∗∗ 0.01 0.03 0.06∗∗ −0.02 0.07∗∗ 0.00 −0.06∗∗ 0.08∗∗
graduates
11. Increase in skill 0.51 0.50 −0.07∗∗ −0.02 0.06∗∗ 0.08∗∗ 0.03 0.28∗∗ 0.14∗∗ −0.10∗∗ 0.17∗∗ 0.07∗∗
requirements
12. Time to fill a position 3.19 3.1 −0.02 −0.02 −0.05∗ 0.05∗ −0.10∗∗ 0.19∗∗ 0.06∗∗ −0.14∗∗ 0.09∗∗ 0.00 0.12∗∗
13. % of new hires at lower 0.22 0.71 0.04 0.01 −0.10∗∗ −0.09∗∗ −0.04∗ −0.07∗∗ −0.05∗ 0.18∗∗ −0.02 −0.05∗ −0.06∗∗ −0.10∗∗
levels
14. % self-managed teams 16.1 29.9 0.02 −0.02 0.00 −0.01 0.04 0.26∗∗ 0.06∗∗ −0.06∗∗ 0.10∗∗ 0.02 0.13∗∗ 0.11∗∗ 0.00
15. Benchmarking 0.33 0.47 −0.08∗∗ −0.04∗ 0.07∗∗ 0.20∗∗ 0.05∗ 0.22∗∗ 0.18∗∗ −0.07∗∗ 0.21∗∗ 0.04∗ 0.18∗∗ 0.11∗∗ −0.08∗∗ 0.13∗∗
16. % assets less than 18.9 2.4 −0.21∗∗ −0.11∗∗ 0.23∗ 0.39∗∗ 0.19∗∗ 0.12∗∗ 0.14∗∗ −0.08∗∗ 0.21∗∗ 0.06∗ 0.16∗∗ 0.07∗∗ −0.05∗ 0.00 0.26∗∗
4 years
17. Number of STW 4.8 4.3 −0.17∗∗ −0.09 0.13∗∗ 0.34∗∗ 0.09∗∗ 0.30∗∗ 0.22∗∗ −0.10∗∗ 0.29∗∗ 0.14∗∗ 0.25∗∗ 0.12∗∗ −0.07 0.13∗∗ 0.38∗∗ 0.39∗∗
activities

a
N s range from 2078 to 3081
∗
p < 0.05; ∗∗ p < 0.01

Strat. Mgmt. J., 26: 523–539 (2005)

 Strategic Frameworks: School-to-Work Programs 533

activities with both the HRM measure and the
manufacturing dummy variable, as well as between
these activities with the percentage of contingent
employees and the measure of employee turnover.
There is also a significant, positive relationship
between the establishment’s evaluation of how
well schools prepare their graduates and the STW
activity variable. This is consistent with the RBV,
as firms may be creating these linkages to fun-
nel high-quality, human capital into their orga-
nizations, but is inconsistent with a market fail-
ure perspective. Other significant correlations with
the dependent variable include firm-specific train-
ing, the use of benchmarking and the perceived
increase in skill requirements at the entry-level
position.
Table 2 shows the results of the regression anal-
yses and Table 3 summarizes the hypotheses and
results. Large establishments (over 100 employ-
ees) participated in more STW activities than
small establishments with fewer than 50 employ-
ees. However, the control variable for the manu-
facturing industry was not significant in any of the
models.6
6
The public use, NES-II dataset includes 21 industry dummy
variables. At the suggestion of an anonymous reviewer, we also
ran regression models which included 20 of these variables. The
significant levels of the theory variables did not differ in these
models from those that are reported in this table.
Contrary to Hypothesis 1, which predicted a
negative relationship between quality of the prepa-
ration schools give their graduates and STW activ-
ities, there is a positive relationship in each model
between the establishment’s evaluation of how
well local high schools, technical institutes, and
junior colleges prepare their graduates with STW
activities.
There is no support for Hypothesis 2a, which
predicted a positive relation between hiring fre-
quency and participating in STW activities.
Hypothesis 2b predicted that STW activities would
be positively related to uncertainty. In support
of this hypothesis in the TCE model, there was
a positive relation between the time it takes to
fill a position with STW participation. This rela-
tion remained positive in the inclusive model as
well, but was no longer significant. The coef-
ficients in both the TCE and inclusive regres-
sion models for the increase in skill level vari-
able and firm-specific training are also significant,
supporting Hypothesis 2c. This hypothesis pre-
dicted a positive relationship between STW activ-
ities and asset specificity. Contrary to the expec-
tation of Hypothesis 3, that employee participa-
tion in self-managed work teams would be nega-
tively related to STW activities, the coefficient for
this variable was significantly, positively related
to STW.

Table 2. Summary of constructs, theories, measures, predictions, and resultsa

Construct Theory Measure/variable name Hypothesis Predicted Results

Market efficiency TCE Evaluation of high school 1 Negative Positive

graduates
Transaction frequency TCE Hiring frequency 2a Positive Not significant
Transaction uncertainty TCE Time to fill position 2b Positive Positive
Asset specificity TCE Increase in employee skill 2c Positive Positive
levels
Firm-specific training
Opportunism TCE % of employees in 3 Negative Positive
self-managed work
teams
Building firm-specific RBV Firm-specific training 4 Positive Positive
capital
Factor market for RBV Evaluation of high school 5 Positive Positive
human resources graduates
Inimitable asset stock RBV % of assets less than 6 Positive Positive
4 years old
Asset reconfiguration RBV Benchmarking 7 Positive Positive
Skill reconfiguration RBV Increase in employee skill 8 Positive Positive
levels

a
TCE, transaction cost economics; RBV, resource-based view.

Copyright  2005 John Wiley & Sons, Ltd. Strat. Mgmt. J., 26: 523–539 (2005)
534 F. Linnehan and D. De Carolis
Table 3. Results of hierarchical OLS regression analysesa

Model Model I Model II Model III Model IV Model V

Control only Baseline TCE RBV Inclusive

Constant 0.12 (0.258) −2.20∗∗ (0.479) −2.45∗∗ (0.508) −2.35∗∗ (0.565) −2.55∗∗ (0.572)
Controls
50–99 employees 0.55∗ (0.239) 0.39 (0.254) 0.47 (0.265) 0.23 (0.292) 0.31 (0.293)
100–249 employees 1.14∗∗ (0.233) 0.87∗∗ (0.248) 0.99∗∗ (0.261) 0.67∗ (0.286) 0.78∗∗ (0.288)
250–999 employees 2.53∗∗ (0.221) 2.16∗∗ (0.237) 2.33∗∗ (0.252) 1.79∗∗ (0.277) 1.95∗∗ (0.282)
1000 or more 4.79∗∗ (0.247) 4.32∗∗ (0.265) 4.48∗∗ (0.281) 3.63∗∗ (0.316) 3.79∗∗ (0.321)
Manufacturing −0.02 (0.147) 0.03 (0.156) 0.05 (0.164) 0.01 (0.180) 0.03 (0.181)
establishment
HRM practices 0.88∗∗ (0.061) 0.66∗∗ (0.068) 0.59∗∗ (0.073) 0.54∗∗ (0.078) 0.49∗∗ (0.081)
Use of contingent 0.77∗∗ (0.155) 0.68∗∗ (0.164) 0.63∗∗ (0.172) 0.48∗∗ (0.189) 0.45∗ (0.189)
employees
Employee turnover −0.01∗∗ (0.003) −0.01∗∗ (0.003) −0.01∗∗ (0.003) −0.01∗∗ (0.003) −0.01∗∗ (0.003)
Common RBV and TCE
variables
Training 0.05∗∗ (0.007) 0.05∗∗ (0.008) 0.04∗∗ (0.009) 0.04∗∗ (0.009)
Evaluation of high school 0.59∗∗ (0.125) 0.60∗∗ (0.130) 0.57∗∗ (0.143) 0.58∗∗ (0.143)
graduates
Increase in skill 0.93∗∗ (0.156) 0.88∗∗ (0.163) 0.75∗∗ (0.180) 0.72∗∗ (0.180)
requirements
Unique TCE variables
Time to fill a position 0.07∗ (0.026) 0.05 (0.028)
Entry-level hiring frequency 0.21 (0.112) 0.22 (0.123)
% of employees in 0.01∗∗ (0.003) 0.01∗ (0.003)
self-managed teams
Unique RVB variables
Benchmarking 1.96∗∗ (0.191) 1.92∗∗ (0.192)
% of assets less than 0.03∗ (0.014) 0.03∗ (0.014)
4 years old
Adjusted R 2 0.26 0.29 0.30 0.33 0.34
F 123.4∗∗ 91.15∗∗ 67.51∗∗ 67.24∗∗ 55.52∗∗
N 2841 2420 2218 1735 1735

a
Non-standardized, estimated coefficient with standard error below in parentheses.
∗
p < 0.05; ∗∗ p < 0.01

Based on the RBV, Hypothesis 4 predicted DISCUSSION

that STW activities would be positively related to
building firm-specific human capital. This hypoth-
esis was supported, as the coefficients for the train-
ing measure were significant in all the models.
Hypothesis 5, which predicted a positive relation
between STW activities and quality of graduate
preparation, was also supported in all the models.
Hypothesis 6, which predicted a positive relation-
ship between investment in new physical assets
and STW activities, was also supported. Consistent
with the RBV and Hypothesis 7, benchmarking
was also positively related to the degree to which
it provides STW activities. Finally, Hypothesis 8
was supported. Skill reconfiguration, measured by
increases in skill requirements, was significantly,
positively related to STW activities.
Copyright  2005 John Wiley & Sons, Ltd.
The purpose of this study was to delve deeper
into employers’ motivations to participate in STW
initiatives by applying the principles of transaction
cost and resource-based theories. From TCE, the
market failure perspective is consistent with the
view of other researchers in this area, and is
implicit in public policy—that firms attribute the
shortage of qualified entry-level job applicants to
an educational system that has failed to adequately
prepare the non-college bound student for employ-
ment (Bailey, 1991; Lewis et al., 1998). Alterna-
tively, RBV suggests that employers’ motivation to
participate in STW is based on the ultimate devel-
opment of human capital for competitive advan-
tage.
Strat. Mgmt. J., 26: 523–539 (2005)
 Strategic Frameworks: School-to-Work Programs
Under TCE assumptions, decisions to partici-
pate in school-to-work initiatives may be seen as
vertical integration decisions, taking over some of
the responsibilities that were once the sole respon-
sibility of the educational system. To test this,
we examined the relationship between employer
perception of graduates and employer participation
in STW. Our results indicate that the firm’s eval-
uation of how well graduates were prepared for
employment was positively related to STW activ-
ities and participation. Thus, the TCE perspective
is not fully supported here.
Some support for the transaction cost view was
found, however, particularly in the positive relation
between asset specificity (firm-specific training and
increasing skill levels) and STW. In addition, in the
TCE model, positive relations were found between
STW and the two other dimensions that describe
transactions, frequency (percentage of new hires at
lower levels in the organization), and uncertainty
(average number of weeks it takes to fill a posi-
tion).
From the RBV view, school-to-work programs
represent a way for firms to access labor that can
be critical in the development of capabilities. In
particular, this investigation contends that these
perspectives provide an explanation of why firms
engage in school-to-work programs—to improve
their internal capabilities.
We hypothesized that if employers perceived
students as well prepared they would be motivated
to participate in STW. We justified this by specu-
lating that STW programs provide a way for firms
to source potentially valuable human capital. Inter-
estingly, we found a positive relation between the
firm’s evaluation of how well schools prepare their
graduates and school-to-work. Perceived quality of
labor is positive and significant in the models. Con-
trary to the market failure perspective, this finding
suggests that firms will participate more intensely
in school-to-work activities when the labor pool is
considered exceptionally good. This represents a
case of firms choosing resources (Makadok, 2001)
that they believe can be manipulated, developed,
and transformed into organizational competencies.
Therefore, they will invest more in school-to-work
activities to develop these competencies as they are
starting with a more qualified tool of raw talent.
We further predicted a positive relation between
school-to-work activities and actively building
firm-specific human capital through on-the-job
Copyright  2005 John Wiley & Sons, Ltd.
535
training and learning. The models showed posi-
tive and significant relationships between training
programs and school-to-work. This supports the
dynamic capabilities approach to firm behavior,
which predicts that factors of production are orga-
nized and coordinated by the firm in ways that can-
not be done through a market mechanism. These
results may imply that not only are school-to-work
programs important as a labor input, but they work
in conjunction with training programs to produce
inimitable firm-specific assets.
Again, consistent with the resource-based and
dynamic capabilities views, the models show a
positive and significant relation between chang-
ing skills and school-to-work intensity. Firms are
actively engaged in seeking labor sources, as the
level of skills needed to compete increases. The
practice of benchmarking is also positive and
significant with school-to-work in both models.
Again, this speaks to the issue of reconfiguration of
firm skills. Those firms that watch, evaluate, and
implement new practices in the interest of qual-
ity, efficiency, and productivity are also looking to
school-to-work to acquire the resources to keep up
with the new practices.
Our findings suggest that the ‘make’ or ‘buy’ or
market failures perspective may not fully uncover
the reasons why employers decide to participate
in STW. Rather, it may be more constructive
to consider the basis of these decisions to be a
value-creating, interorganizational strategy (Zajac
and Olsen, 1993). Zajac and Olsen (1993) have
proposed a transactional value approach that is
useful in understanding such interorganizational
strategies as STW alliances. From this perspective,
STW partnerships are best considered a type of
interorganizational alliance with the potential of
long-term value creation.
The main goal of these hybrid organizational
structures is not the minimization of costs, but
the ultimate creation of value. We believe that
our results support the implications of this the-
ory. For employers, the pay-off is the develop-
ment of firm-specific human capital capabilities
that may contribute to competitive advantage, con-
sistent with the RBV approach and empirically
supported here. For the educational system, the
pay-off is the advancement of graduates into job
training and perhaps permanent employment.
With respect to the costs of this interorganiza-
tional alliance, we did not address the ‘negative’
effects of human capital. Throughout this paper,
Strat. Mgmt. J., 26: 523–539 (2005)
536 F. Linnehan and D. De Carolis
we have assumed that human capital is a positive
benefit to the firm, that is, that generally, human
capital can be a source of competitive advan-
tage. An alternative view of human capital and
its relationship to competitive advantage is pro-
posed by Coff (1997, 2002), who suggests that
human capital, owing to its specificity, social com-
plexity, and causal ambiguity, may entail negative
consequences, in particular, turnover, opportunistic
behavior, and shirking (Coff, 1997).
The findings in this analysis neither negate nor
support this idea. Our premise, as stated in the
introduction, is to explicate the sourcing and build-
ing of human capital. Firm decisions to participate
in STW are, according to our empirical results,
attempts to build human capital that can lead to
competitive advantage. Coff’s (1997) contention
is that the dark side of human capital is a real-
ity that managers must deal with through coping
mechanisms such as rent sharing, organic struc-
tures, shared governance, and current information
on employees. We do not disagree. However, our
intent is to examine the sourcing and building of
human capital as they relate to firm participation in
STW programs, not the human resource strategies
used by firms to retain employees and constrain
the possible negative side effects.
Moreover, under a transactional value lens
(Zajac and Olsen, 1993) the potential costs of
turnover, shirking, and opportunism that emanate
from human capital may be outweighed by the
anticipated value created by employees embed-
ded in firm-specific systems and corporate culture.
Thus, while STW programs may not be the most
efficient in terms of alleviating the potential risks
of building human capital, STW programs may be
an alternative to building potential value of human
capital.
Implications
Exploring firm decisions to participate in STW
may be particularly valuable at this point in time,
as the United States is entering a critical juncture in
developing a new public policy toward preparing
non-college-bound high school students for their
professional careers. While there is some contro-
versy over its effectiveness (Guest, 2000), the fed-
eral government’s financial impetus for STW pro-
grams in the 1990s was provided by the School-to-
Work Opportunities Act, signed into law in 1994.
With the expiration of this legislation in 2001, U.S.
Copyright  2005 John Wiley & Sons, Ltd.
policy needs to be reformulated either to continue
to finance STW programs as currently constituted
or to develop alternative approaches to adequately
prepare youth for their professional careers.
Educators and public policy-makers have often
assumed that one of the primary reasons businesses
should be motivated to create linkages with edu-
cation is the poor quality of graduates entering the
workforce, the underlying assumption being that
business involvement in education will improve its
quality, thus improving the quality of job appli-
cants. However, this study suggests a different
motive. The business community may look at its
involvement in STW as a way to develop firm-
specific capabilities, not to enhance educational
quality. While this, too, is a self-interest motive,
our study suggests that this self-interest may be
driven by a desire to build capability through the
choosing of quality human capital that can be
transformed into firm-specific capabilities. Thus,
businesses may be less motivated to participate in
STW when schools are failing, which may be a
reason why many businesses end their school-to-
work relationships (Shapiro, 1999).
Limitations
While this study has many strengths, i.e., the
size and the nationally representative data sample,
as well as our use of established management
theory, there are certain limitations inherent in its
design. For example, the composite index we use
to measure STW activities is an indication that
these activities are used in the firm, yet it does
not explain the extent to which they are used
throughout each establishment.
The cross-sectional nature of the data limits its
internal validity. Given that the data were collected
at one point in time, and the time at which the firms
entered into STW partnerships or offered STW
activities is unknown, the direction of causality
between the dependent and independent variables
cannot be assessed. For example, a plausible expla-
nation for the significant, positive relation between
how well local high schools, technical institutes,
and community colleges have prepared their gradu-
ates with the decision to participate in STW is that
this assessment is a consequence, not a determi-
nant, of the firms working with these institutions.
Collecting data over time would be the only way
to establish the direction of this relationship.
Strat. Mgmt. J., 26: 523–539 (2005)
 Strategic Frameworks: School-to-Work Programs
Besides using longitudinal data, future research
should also make an effort to employ different data
sources to minimize the effects of common method
variance. Since all the data in this study were
collected from a single source, common method
variance may account for some of the relationships
found among the study’s variables. The strength
of the some of the relations between the variables
may be due to ‘response sets’ that introduce error
into the data (Converse and Presser, 1986). This
error may lead to spurious relationships among the
independent and dependent variables. We tested for
the possible influence of common method vari-
ance, using Harmon’s one-factor test (see Blum,
Fields, and Goodman, 1994; Konrad and Linnehan,
1995). Four factors with eigenvalues greater than
one emerged from a factor analysis of the 11 vari-
ables in this study (cumulative variance explained:
50%). Since there were multiple factors and the
first factor accounted for only 19 percent of the
variance, common method variance may not have
significantly influenced the results of the data anal-
ysis.
SUMMARY
In this paper, we have used two theoretical per-
spectives of the firm to explore employer decisions
to participate in school-to-work programs. We have
presented evidence that firms may be motivated to
use STW as a way to gain competitive advantage
by establishing linkages to schools with graduates
who will be successful in organizations. If simi-
lar evidence were demonstrated in future research
using longitudinal designs, it would indicate that
the future of school-to-work programs might be
more dependent upon the success of the educa-
tional system, rather than its perceived failure.
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