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-thanaverage 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?
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