This article examines the problem of labor market adjustment to industrial change through a case study of engineers displaced from California’s aerospace industry at the end of the Cold War. Displaced engineers experienced long unemployment spells and a decline in earnings after finding new employment. Displaced workers, according to human capital theory, generally have difficulty readjusting to the labor market because their firm-specific skills do not easily transfer to new industries. However, employers in the electronics industry in California, a sector in which displaced aerospace engineers could transfer their firm-specific skills, avoided hiring displaced aerospace engineers. Electronics employers reported that displaced aerospace engineers had difficulty adapting to the organizational culture and technological requirements of the electronics sector because of work habits acquired in aerospace. We argue for an extension of human capital theory that goes beyond firm-specific skills and includes work norms and attitudes acquired through work.
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