U09071

Stanley Fong
Lecture 6: 19 July 2006
Lecture
Lecture 6:
6: Employment
Employment
relationships
relationships
Internal, external, segmented and
dual labour markets
Theories of labor market
Neoclassical theory
Dual and segmented labour markets
Internal labour market (ILM)
Theories
Theories of
of Labor
Labor Market
Market

Neoclassical theory
explain how individuals and jobs are
matched.
the labor market provides for an equilibrium
that allocates workers to jobs based their
economic measures.
such as education, skill, age, experience,
and past performance.
Theories
Theories of
of Labor
Labor Market
Market

Neoclassical theory
The role of employers
rational actors
economic maximization
focus on the attributes of potential workers
that affect their performance (qualification,
knowledge, specific training, experience,
etc.).
Theories
Theories of
of Labor
Labor Market
Market

Neoclassical theory
based on the concept of human capital.
the labor market as a neutral arena that
has no systematic biases in hiring practices
or the development of structural rigidities in
the labor market.
perfect competition
Theories
Theories of
of Labor
Labor Market
Market
Neoclassical theory
the labor market appears, in many ways, to
favor certain groups over others.
alternatives to human capital theory have
been proposed, both within and outside
neoclassical economics.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
Forces
the causes of the split labor market were
explained through an analysis of the
demand for labor.
the existence of qualitatively different types
of jobs is associated with a particular
configuration of labor supply.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
Primary and secondary segments
labor market as divided between "good"
and "bad" jobs - those that reward workers
for their human capital and those that do not.
the portion of the labor market that includes
workers with recognized qualifications,
relatively stable job tenure, better-than-
average incomes, and privileges associated
with seniority came to be known as the
primary segment.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
Primary and secondary segments
the secondary segment, conversely, is
comprised of jobs that are seen as less
skilled, quickly learned, and more vulnerable
to economic fluctuations;
workers enjoy few returns to education or
experience, since they are not deemed
requirements for their jobs.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
Primary and secondary segments
most core, or primary, jobs are acquired by
men.
women, visible minorities, and recent
immigrants, on the other hand, form the bulk
of the secondary segment.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
"duality" implies not just two categories of
activity, but rather a continuum from one
extreme to the other, which can be divided
into two or more sectors for analytical
purposes.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
Dual labor market theory explains how
class, racial and gender stratification is
reproduced in the labor market.
Privileged workers from dominant groups in
society (white males, for example) are able
to obtain the highest skills and thus control
the best positions in the primary sector
where they are able to extract high wages
and benefits from employers.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
Minorities and women, with lower skills
and/or less access, will be routed into the
secondary labor market, where their lack of
control over the workplace leads to lower
income and worse work conditions.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
those who are unable to access either of
these sectors, such as recent immigrants,
will search for opportunities in the informal
sector where ethnic networking can make up
for the lack of skills related to the local
formal job market.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
Later variants of the theory specified a third
segment, the primary subordinate, that
shares the high wages and protected status
of the primary segment but not the same
level of education and perceived skill.
Dual
Dual and
and segmented
segmented labour
labour
markets
markets
See employers as participants in wider
systems of discrimination that evaluate the
skill and potential productivity of workers
with taken-for-granted sexist and racist
stereotypes.
Prime-age "white" males are apparently
still preferred for intellectually demanding
jobs, while poorly paid, uncertain work is left
for those conveniently defined as "other,"
whether by sex, ethnicity, sexuality, or some
other form of difference.
Internal
Internal labour
labour market
market (ILM)
(ILM)
Definition
“an administrative unit, such as a manufacturing
plant, within which the pricing and allocation of
labour is governed by a set of administrative
rules and procedures. The internal labour market,
governed by administrative rules, is to be
distinguished from the external labour market of
conventional economic theory where pricing,
allocating, and training decisions are controlled
directly by economic variables”, Doeringer and
Piore (1971, pp. 1—2).
Internal
Internal labour
labour market
market (ILM)
(ILM)
Characteristics
high employment stability;
the restriction of entry;
internal promotion;
seniority in promotion;
wage determination based on internal
factors; and
the attachment of wages to jobs rather than
workers.
Internal
Internal labour
labour market
market (ILM)
(ILM)
1. How would you distinguish between an
ILM and a competitive labor market?
2. Why do ILMs exist?
3. Why do wages tend to rise with job tenure
in an ILM?
4. ILMs provide one reason the wage may
not equal the marginal revenue product.
Can you think of any others?
5. Transaction costs (including the costs of
hiring and firing) are often cited as one
reason ILMs come into being. In what
way?
Thank you