A theory of the firm's demand for HRM practices

Abstract

Empirical data are presented that reveal a large variation in the pattern of HRM practice adoption across firms. The paper then develops an economics-based theory that explains this pattern. The model broadens the HRM concept; models the linkage between HRM practices and firm performance (the 'black box'); generates an HRM input demand function and demand curve; formalizes the concept of strategic HRM; suggests a new empirical tool for HRM research; generates new hypotheses and insights on the nature of the HRM-firm performance relationship; suggests that existing theories of the HRM-firm performance relationship are seriously mis-specified; and posits that on theoretical grounds the effect of more HRM on firm performance in long-run competitive equilibrium is not positive but zero.