Theoretical Foundation of the Study
This segment deliberates the theories that will guide the study. It specifically reviews
Becker’s human capital theory and Hormans’ social exchange theory.
Human Capital Theory
The study will be steered by Becker’s human capital theory (1962). The theory views
employee skill-sets such as education, age, talents, technological knowhow among others
as capital for future employee productivity and not just costs that have zero returns to the
firms (Bonnett, 2013). It recognizes that workers and firms alike depend on the
development of human capital to promote employee productivity and performance based
on two underlying principles. Firstly, it views hiring and retaining of employees as
different from investment in physical capital because employers do not own property
rights over employees (Boardman & Ponomariov, 2014). Thus, investment in human
capital is always externally oriented and provides the firm with a competitive edge over
others within a competitive market. Secondly, the hiring and retention strategies must
be need-based
because it is expensive to retain employees with diminishing returns to training
(Chaudhuri & Ghosh, 2012).
Traditionally, the rationale behind diminishing returns to education and training as
discussed by this theory is that both parties lose their entire investment in the event of a
separation after hiring best fit qualities from the job market or after training the
employees to meet the job needs (Bolderston, 2012). While Becker’s thoughts
conjectured that the firm and the worker would share costs and benefits in that case,
Hashimoto (1981) formalized an optimal sharing rule based on the minimization of
inefficient post-training separations suggesting that it is always in the interest of the
employers to retain their employees.
Thus, the theory is relevant to the current study in that posits that retaining human capital
for a long time benefits the firm in all fronts. Skills such as the ability to interact with
people of diverse socio-economic backgrounds are beneficial to the company in the
formation of teams thus reducing fault-lines within groups (Psacharopoulos & Patrinos
2004). However, it has also been criticized because of the assumption that training and
education increases employee productivity and individual wages without providing a
logical framework through which education and training translates to greater wages (Dee,
2004). The rationale of this misfit between training and employee wages emerges from
the statistical calculations showing that training and education comprise of about 30% of
personal wages difference, which implies Human Capital Theory does not explain a
major percentage of wage variability (Lawson, 2012).
Social Exchange Theory
The study will also be steered by social exchange theory by G. Hormans (1960). The
theory is a set of behavioral frameworks that conceives people as rational beings that are
always looking for benefits and reducing costs in their actions. Thus, by providing the
theoretical and methodological understanding of the rationale behind peoples’ actions, it
has been used by researchers to explain the shift of employees from one job or firm to the
other (Mendes, & Stander, 2011). It bears three key assumptions that underlie its
propositions.
Firstly, people always conduct a cost-benefit analysis in all relationships in which case a
given partaker of any relationship economically establishes a ‘give and take’ metric
design which is subsequently used to determine the viability of that particular relationship
(Aruna & Anitha, 2015). The word ‘costs’ here means relational aspects that a given
actor views as negative to initial expectations while ‘benefits’ are traits that are positive
to those expectations. Secondly, people’ expectations play a dynamic role in their
decisions and actions. As individuals compare the costs and benefits of a given
relationship, they do so by determining a comparison level that is often influenced by
their expectations built from past experiences (Dinger et al. 2012). Lastly, people always
seek to gain profit with minimal costs i.e. if the negative attributes of any engagement are
rationally determined to outweigh the benefits, an individual doing the analyses will
decide to shift to another context that offers more rewards than losses (Hormans, 1990).
Accordingly, the theory suffices this study in so far as its assumptions provide a metric
design that calculates the various inputs or expectations of an employee into one job or
firm vis-a-vis the gains. This metric design produces data that can be used to understand
the exit from that job or firm to the other. The researcher will hence have the opportunity
to measure rational persuasions of millennial employees to leave CBKL for other
competitors and some of the decisions that are available for HRM units to curb the exits
through provision of the rationally calculable needs of the millennial employees through
a rational means (Adams, & Ford, 2018).
However, the theory has been criticized in many fronts. The most significant concerns
around it is that it leverages people to view it as a mathematical model that is both
heartless and generalized in interpreting human interaction (Lammers & Borbour, 2006).
Implicitly, the theory generally assumes that individuals are inherently selfish and ready
to terminate relationships that do not appear to confer more gains than losses; however
Miller (2005) emphasized that such as a multifaceted mixture of benefits and drawbacks
can never be reduced to a single statistic or be represented as a linear relationships when
some interactions are staggered or go backwards in terms of intimacy (Miller, 2005)
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