Internal Labor Markets

The internal labor market has become increasingly important to understand social boundaries in organizations. The classical assumptions that workers are free to easily change jobs and maximize their potential earnings are largely incorrect -- "information, opportunities, rewares, and mobility are differentially structured and shaped. by various occuptational, industry, and organizational arrangements" (Scott p. 188).

An internal labor market is "an adminstrative unit, such as a manufacturing plant, within which the pricing and alocation of labor is governed by a set of administrative rules and procedures". (Doeringer and Piore quoted by Scott p. 188). Usually there is a hierarchical structuring of jobs with entry level ones at the bottom connected to external labor markets.

What factors lead to the creation of internal labor markets? Williamson (1981) suggests its largely determined by the specificity of the jobs. If the work requires specialized skills that are not easily transferrable to other workers, organizations can help reduce the external flow of specialized labor by created internal hierarchies that allow a carrer with advancement and increased earnings and incentives.

These internal labor markets usually have a higher level of trust and perceived investment by the company and workers. (Scott p. 189).

Marxist theorists argue that internal labor markets represent a flexible means of increased social control of labor through job categories, rules, promotion procedures, etc. Hierarchies also segregate workers into a status orientation that makes them more docile and less likely to organization against management (Baron, 1984).

There are various studies exploring the characteristics of these internal labor structures. Some suggest that in more strategic environmental positions have more complex internal structures. Larger firms tend to reward and promote those with higher eductional levels more than in smaller firms.

Sex segregation of job types is one of the major reasons why women are paid less than men. Once into organizations, women are also rounted into different organizational roles that are paid less as well. Organizations have found it easier to justify pay differences based on different formal job descriptions than on performance differences between workers (Scott p. 191). Kanter (1977) describes the maze of dead-ends, fast tracks, traps, etc. that characterize the diverse career paths in large corporations.

Pfeffer and Cohen (1984) note that the creation of internal labor markets seems to be also correlated with the creation of personnel departments in companies. Once created, the human resource professionals in these organizations bring in external norms of hierarchy, careers, promotion rules, etc. that help solidify the internal labor market.

But the stability and control of internal labor markets have an inherant cost, and some firms are actively reducing the attachment between employers and workers (Scott p. 192). Pfeffer and Baron (1988) describe three ways this is accomplished:
* locational -- off-site work, telecommuting, flexiplace
* temporal -- more part-time workers, short-term workers
* administrative -- contractors, temp agencies

These tactics can allow organizations to circumvent hiring regulations by contracting out the work, and they give increased flexibility for employee headcount. It gives the organization a "buffer workforce" to absorb environmental fluctuations while maintaining implicit career contracts with regular workers.