The Struggle of Small Firms to Retain High-Skill Workers: Job Duration and the Importance of Knowledge Intensity

Advanced knowledge increases the productivity of skilled workers. Large firms are more innovative and more technological, so this knowledge-skill complementarity may be different for small and large firms. We study how the complementarity affects job duration, and how firm size influences this relationship. We find that skilled workers in large knowledge firms see a premium in terms of longer durations but in small knowledge firms they suffer a penalty instead. Even small knowledge firms paying higher wages find it hard to keep workers. These facts limit small firms’ ability to handle knowledge. This calls for policy mechanisms to diminish barriers to knowledge, recognizing that human resources are the main assets of new ventures.