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