INTERNAL LABOR MARKETS
LIR 809
DEFINITION OF INTERNAL
LABOR MARKET
Market where pricing & allocation
of labor is determined by a set of
administrative rules &
procedures
LIR 809
ADMINISTRATIVE RULES &
PROCEDURES
Î Determined
by set
of economic,
political,
sociological &
historic forces
plus custom
Î Can be explicit or
implicit
Î Rules
substitute
for individual/firm
preferences in
determining who
works, at what
price, and doing
what job
Î Best describe
within org.
markets
LIR 809
1
COMPETITION IN ILM
Î Workers
in internal labor markets:
sets of non-competing groups
ÎWorkers may or may not compete with
each other within ILM but never
between ILMs
Î ILM
as “short-term” constructs
LIR 809
WAGE DETERMINATION IN
ILM (Pricing)
Î Rates
vs. Structures:
ÎNeoclassical market determines
single wage rate for labor market
ÎILM determines wage structure:
Individual pay depends on place in
structure
LIR 809
REFERENCE POINTS FOR WAGE
STRUCTURE
Î
Internal Ref. Points
Î
ÎJob Clusters
ÎDef: Stable groups of
job classifications
ÎLinked through
technology,
administrative
structure, custom
ÎMultiple clusters in
same organization
Î
Oriented around Key
Rate
External Ref. Points
ÎWage Contours
ÎDef: Stable group of
firms or other units
ÎLinked by product
market, sources,
custom
ÎDimensions:
Occupation, Industry,
Geography
Î
Oriented around Key
Rate
LIR 809
2
AN EXAMPLE: MSU
Job
cluster
Wage
Contour
Academic
Administrative Clerical
- Faculty in
same dept.
By rank
- Provosts
- Exec. Sectr.
- Directors
- Office Asst.
-Staff/Specialist - Secretary
-Admin Assts.
- Faculty in
Same college
- Faculty in
Sim. Dept.
other Univ.
- Priv. Sector
- Foundations
-Govt.
-Other Univ.
-MSU Clerical
- Each Other
LIR 809
MOVEMENT IN THE ILM (Allocation)
Î Access
to ILM: Ports of Entry
ÎUsually entry level
ÎLowest skill in job cluster
Î Movement within ILM: Job Ladder
ÎRelatively clear, pre-defined steps
ÎBased on: skill acquisition & seniority
ÎVariability: in length, permeability,
organizational setting
LIR 809
Important differences b/n ILM
and Neoclassical
Î How
decisions made: ILM is rule-based;
neoclassical is market based.
Î Motivations: Neoclassical is response to
prices; ILM is response to mix of
factors ($$, equity, custom, etc.)
Î Pricing & allocation: Neoclassical is
constrained individual choice; ILM
determined by place in structure.
Î Neoclassical assumes 0 transaction costs;
ILM built because of transaction costs.
LIR 809
3
WHY ILMS ARISE: MARKET
EXPLANATION
Î ILMs
Efficient
Solution to
Allocation and
Supervisory
Problems in
Complex Economy:
Î Training
Î Monitoring
Î Recruitment
Î Mobility
& Job
Assignment
Problem: Firms complain about constraints
of ILM – Are ILMs really efficient?
LIR 809
WHY ILMS ARISE:
INSTITUTIONALIST VIEW
Î Firm’s
Perspective
ÎIdiosyncratic requirements of the firm
Î Workers’
Perspective
ÎShelter from competitive Pressures
ÎEquity concerns:
ÎRelative Wage Equity
ÎMastery over market forces
LIR 809
WHERE DO ILMS ARISE?
Î In
Industries/organizations that
have sufficiently stable and highvolume product demand to sustain
stable employment.
Î Important: ILM as relatively
short-term construct; inevitability
of market forces.
LIR 809
4
Sequence from Market Conditions
to Career Paths
Stability in Product Market
Stability in Production Process
Stability in Level & Composition of
Demand for Labor
Stable Career Paths
LIR 809
ILM increasingly less descriptive
of reality
LIR 809
CURRENT MISMATCHES
Î Between
existing firm structures
and increasing competitiveness in
the product markets
Î Between production and consumption
of goods
Î Overcapacity for mass produced
goods
Î Need for niche production
Î Leads
to uncertainty
LIR 809
5
KEY POINTS ABOUT MASS
PRODUCTION
Î Predicated
on ability to gain cost
efficiencies
Î Compete on basis of PRICE
Î Hierarchical
management structure
Î Centralized power structure
Î PROBLEM: Firms best able to gain
cost efficiency least able to
innovate
LIR 809
BASIS FOR SOLUTION
Î Challenge
logic of mass production
ÎCompetition on quality and service
ÎDecentralized power structure
Î Distinguish
between 2 types of:
Î Numerical flexibility
Î Functional flexibility
LIR 809
Conclusion
Î Traditional
ILM work arrangements
incompatible with product market
reality
Î Central question: How to handle
resulting uncertainty
LIR 809
6