This study develops the concept of firm-specific human capital which results from training, search, and transfer investments of peculiar value to a particular firm. The effects of firm-specific human capital on firm turnover and wage policies are examined. The optimal sharing of such investments between firm and worker is explored. The important propositions that layoff rates and quit rates are negatively related to the firm's and worker's investments, respectively, in specific capital are tested using cross-section data for a broad set of manufacturing industries. The results support the hypotheses and reconcile past, apparently contradictory, empirical efforts along these lines.