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Keywords:

  • H57 (Procurement);
  • M54 (Labor Management);
  • M12 (Personnel Management);
  • J63 (Turnover, Vacancies, Layoffs)

This paper presents empirical evidence of lower quit rates at small manufacturers with defense contracts and examines whether this is associated with differences in their human resource policies and organizational practices and strategies. We take advantage of an original data set to compare labor quits, workforce skills, and occupational structure between defense-contracting and noncontracting small manufacturers in eastern Pennsylvania. We find that the remarkably large defense contractor advantage in quit rates—7 percentage points—is almost totally explained by differences in skills, operational strategies, and workforce management and training practices, suggesting a mediation effect through these HR practices. Defense-contracting status emerges as an important overlooked variable in HRM studies.