Abstract
Firms allocate workers to clients to provide services. On the job, workers acquire skills that increase their client-specific productivity and therefore raise the probability that clients poach them. In this paper, we advance the understanding of this important, yet understudied feature of service industries. We show, both theoretically and empirically, that in order to mitigate poaching risk firms may forgo potential productivity gains by moving workers from one client to the other. Focusing on a security service-industry firm in Colombia, we find that an increase in client-specific experience increases both workers’ productivity and probability that the workers are poached. After a policy change that forbids talent poaching, the firm sharply decreased the frequency of rotation, especially for workers who were more likely to be poached before the policy change. The theoretical model we propose is consistent with these empirical patterns and substantiates the broad applicability of the studied mechanism.