Internal Labor Market Theory Research Articles

Stepping Sideways to Step up: Lateral Mobility and Career Advancement Inside Organizations

Although internal labor market theory emphasizes promotions as the main form of mobility within organizations, many internal job moves take people sideways into jobs that are at the same hierarchical level as the one that was left. Despite the prevalence of these lateral moves, however, we have little evidence on what role they play in workers’ careers. We argue that lateral mobility can facilitate subsequent career advancement by allowing for the development and demonstration of new skills and can, therefore, help those who would struggle to be promoted from their current job to develop their careers further. We establish empirical evidence on the implications of lateral mobility using eight years of personnel data from a large U.S. healthcare company. Our analyses show that those employees who move laterally are more likely to be subsequently promoted and achieve substantially higher pay growth than a matched sample of employees. We also find that lateral moves are more likely to be undertaken by those who have spent longer in the job but have lower performance than those who are promoted. This pattern of results suggests that lateral mobility provides an important avenue for career growth as people who step sideways in organizations are more likely to subsequently step up. This paper was accepted by Lamar Pierce, organizations. Supplemental Material: The online appendix and data files are available at https://doi.org/10.1287/mnsc.2021.03746 .

Institutional Economics and Human Resource Development

The problem and the solution. Institutional economics has long been associated with economic and training behaviors in organizations since the 1950s. Human resource development (HRD) scholars have not been adequately exposed to the relevant theories for its foundational role and direct applicability to HRD research and practice. In an effort to properly understand economics as a foundation of HRD, this article presents institutional economic theories and models pertinent to HRD research and practices. By examining institutional school of contemporary economics, especially the internal labor market theory, it is shown that economic theories not only provide a foundation but also have important implications to research and analytical approaches to the field of HRD.

Neoclassical and Institutional Economics as Foundations for Human Resource Development Theory

In an effort to more comprehensively understand economics as a foundation of human resource development (HRD), this article reviews economic theories and models pertinent to HRD research and theory building. By examining neoclassical and neoinstitutional schools of contemporary economics, especially the screening model and the internal labor market theory, it is argued that economic theories not only provide a foundation but also have important implications to HRD theory, research, and practice. Broadening research directions may be fruitful and provocative in expanding HRD’s theoretical base as well as practical applications in organizations.

Re-thinking the Economics of Discrimination: US Airways v. Barnett, the ADA, and the Application of Internal Labor Markets Theory

This article contributes to the current debate over the economic implications of the Americans with Disabilities Act. It argues that Justice Breyer's plurality opinion in US Airways v. Barnett interpreted the ADA using an economic theory of worker-management relations known as internal labor market theory and thereby invited a worthwhile break with a central orthodoxy in the debate over the economics of employment discrimination. The predominant view among law and economics scholars has been that mandates in discrimination laws requiring employers to alter their conduct are, at best, unnecessary to the efficient operation of labor markets or, at worst, inefficient government interventions that roil otherwise efficient markets. Rather than merely attacking this conclusion, Justice Breyer's Barnett opinion seems to reject the central economic assumption used to reach it. Law and economics analyses criticizing discrimination laws have typically assumed perfectly competitive labor markets. Internal labor market theory posits that some labor markets are competitive, but others are not. Specifically, internal labor markets create substantial barriers to competition. Thus, analyses of employment discrimination laws premised on the existence of perfectly competitive labor markets offer little insight into the effects of these laws in the internal labor market. Barnett held that a proposed accommodation of an employee with a disability would be ordinarily unreasonable and, therefore, not required by the ADA, if it violated the employer's seniority system. Although he did not expressly rely upon internal labor market theory, the article argues that the best explanation for Justice Breyer's Barnett opinion is that an employer's seniority system can play an important role in shaping and protecting an employer's efficient long-term relationships with its employees. As a result, an accommodation proposed by an employee with a disability that would violate the seniority system may threaten the efficiencies made possible by the internal labor market and, therefore, not be a reasonable accommodation. This article elaborates on Justice Breyer's opinion and its application of internal labor market theory. It concludes that internal labor market theory does not permit establishing a presumption, whether rebuttable or not, that accommodations which violate seniority systems necessarily result in losses to the disabled employee's co-workers. Using several leading theories of the internal labor market, this article shows that losses are not inevitable for the co-workers or the employer of an employee with a disability when an accommodation violates a seniority system. In addition, this article argues that, while seniority systems can promote and protect the efficiencies of the internal labor market, accommodations of employees with disabilities can also promote efficiency in the internal labor market. Thus, the balance between two important efficiency-enhancing tools - seniority systems and accommodations of employees with disabilities - must be struck carefully based on evidence rather than presumption. The article concludes that the employer/defendant and the employee/plaintiff with a disability should share a responsibility to offer the best available economic analysis of the employer's seniority system so that the reviewing court may assess the consequences of a proposed accommodation that might violate it.

Uncovering and Explaining Variance in the Features and Outcomes of Contingent Work

Existing research tends to depict contingent work either as having similar implications for firms and workers in all settings or as varying in its implications depending only on contingent workers' occupation or personal characteristics. In contrast, the author of this paper identifies systematic differences in contingent jobs across organizational contexts that are due to the strategies and practices of management. She uses internal labor market theory and data collected from two comparative case studies, both conducted in 1996–97, to develop four distinct models of how contingent work may be managed. Each of the contingent employment subsystems had distinct practices—related to job definitions, wage rules, and deployment through career ladders—put in place by management in response to technological factors and performance objectives. Each also raised challenges for integrating regular and contingent workers and generated trade-offs for both groups of workers as well as for the firm.

Uncovering and Explaining Variance in the Features and Outcomes of Contingent Work

Existing research tends to depict contingent work either as having similar implications for firms and workers in all settings or as varying in its implications depending only on contingent workers' occupation or personal characteristics. In contrast, the author of this paper identifies systematic differences in contingent jobs across organizational contexts that are due to the strategies and practices of management. She uses internal labor market theory and data collected from two comparative case studies, both conducted in 1996-97, to develop four distinct models of how contingent work may be managed. Each of the contingent employment subsystems had distinct practices - related to job definitions, wage rules, and deployment through career ladders - put in place by management in response to technological factors and performance objectives. Each also raised challenges for integrating regular and contingent workers and generated trade-offs for both groups of workers as well as for the firm.

The Control of High-Skill Labor and Entrepreneurship in the Early US Semiconductor Industry

Studies of entrepreneurship increasingly focus on the context of entrepreneurship, rather than on the characteristics of the entrepreneur. Arguing that the inability of particular firms to control high-skill labor is responsible for a critical component of contemporary entrepreneurship—technologically based spin-offs—the author provides a theoretical basis for the effects of career dynamics on entrepreneurship. A theory of entrepreneurship, drawing on human capital theory, skills–opportunity theory, and internal labor-market theory, links declines in firm market share to a disequilibrium in labor-market matches. That imbalance leads to the breakdown of control and the consequent generation of spin-offs. Combining theory with qualitative and quantitative evidence, support is drawn from a study of the US semiconductor industry from its beginning until its early maturity in the mid-1970s.

New Developments in the Labor Market: Toward a New Institutional Paradigm.

The structure of employer/employee relationships is changing. These original contributions report on new developments taking place in today's labor market and on the role of public policy in shaping that process. They provide an illuminating description of the current state of internal labor market theory and practice, document the evolution of trends in the public and private sectors, and are joined in a concern for disadvantaged and unemployed workers that is all too rare in scholarly work. A central theme is the adaptation of labor market institutions to the important environmental changes of recent years, including the shift to an international marketplace for goods and services, the spread of new workplace technologies, new work force demographics, and changing conceptions of the role that government should be expected to play.Katharine Abraham is Associate Professor of Economics at the University of Maryland. Robert McKersie is Professor of Industrial Relations at the Sloan School of Management at MIT.Contents: Introduction, Katharine G. Abraham. Norms and Cycles: The Dynamics of Nonunion Industrial Relations in the United States, 1897-1987, Sanford M. Jacoby. The Effects of Worker Participation in Management, Profits and Ownership of Assets on Enterprise Performance, Michael A. Conte, Jan Svenjar. Restructuring the Employment Relationship: The Growth of MarketMediated Work Arrangements, Katharine G. Abraham. The Evolving Role of Small Business and Some Implications for Employment and Training Policy, Gary W. Loveman, Michael J. Piore, Werner Sengeneberger. Employment Security and Employment Policy: An Assessment of the Issues, Paul Osterman, Thomas A. Kochan. The Equity and Efficiency of job Security: Contrasting Perspectives on Collective Dismissal Laws in Europe, Susan N. Houseman. ContinuousProcess Technologies and the Gender Gap in Manufacturing Wages, Susan B. Carter, Peter Philips. Reducing Gender and Racial Inequality: The Role of Public Policy, Peter Gottschalk. Government and the Labor Market, Robert M. Solow.

New Developments in the Labor Market: Toward a New Institutional ParadigmNew Developments in the Labor Market: Toward a New Institutional Paradigm, edited by AbrahamKatharine and McKersieRobert. Cambridge, MA: MIT Press, 1990, 299 pp., cloth.

The structure of employer/employee relationships is changing. These original contributions report on new developments taking place in today's labor market and on the role of public policy in shaping that process. They provide an illuminating description of the current state of internal labor market theory and practice, document the evolution of trends in the public and private sectors, and are joined in a concern for disadvantaged and unemployed workers that is all too rare in scholarly work. A central theme is the adaptation of labor market institutions to the important environmental changes of recent years, including the shift to an international marketplace for goods and services, the spread of new workplace technologies, new work force demographics, and changing conceptions of the role that government should be expected to play.Katharine Abraham is Associate Professor of Economics at the University of Maryland. Robert McKersie is Professor of Industrial Relations at the Sloan School of Management at MIT.Contents: Introduction, Katharine G. Abraham. Norms and Cycles: The Dynamics of Nonunion Industrial Relations in the United States, 1897-1987, Sanford M. Jacoby. The Effects of Worker Participation in Management, Profits and Ownership of Assets on Enterprise Performance, Michael A. Conte, Jan Svenjar. Restructuring the Employment Relationship: The Growth of MarketMediated Work Arrangements, Katharine G. Abraham. The Evolving Role of Small Business and Some Implications for Employment and Training Policy, Gary W. Loveman, Michael J. Piore, Werner Sengeneberger. Employment Security and Employment Policy: An Assessment of the Issues, Paul Osterman, Thomas A. Kochan. The Equity and Efficiency of job Security: Contrasting Perspectives on Collective Dismissal Laws in Europe, Susan N. Houseman. ContinuousProcess Technologies and the Gender Gap in Manufacturing Wages, Susan B. Carter, Peter Philips. Reducing Gender and Racial Inequality: The Role of Public Policy, Peter Gottschalk. Government and the Labor Market, Robert M. Solow.

On the Usefulness of Class Analysis in Research on Social Mobility and Socioeconomic Inequality

The article critically discusses the two main uses of the concept of class in recent stratification research. They are John Goldthorpe's analysis of social mobility from a class formation perspective and Erik O Wright's analysis of income inequality in the labor market. I argue that the main problem with both efforts is the lack of a satisfactory theory of how class generates inequality within the labor market. The logic of Gold thorpe's argument assumes that class causes inequality generating separate class interests in the labor market, but he does not provide such a theory. Wnght provides such a theory. However, his several class schemes either provide explanations for inequality that can be derived from standard internal labor market theory that does not satisfy the requirement of class theory; or, they are based on a concept of exploitation that is unsatisfactory for the identification of class categories within the labor market. I observe that it is not clear why Marxist theory needs a class theory of how inequality is generated within the labor market: standard neo-classical economic theory seems consistent with Marx's own conception of the capitalist economy

Organizational demography.

This is a review of the literature concerning organizational demography, with a focus on intraorganizational demography. The author concludes that "the potential for organizational demography appears great, especially for yielding new insights into organizational behavior. There are also current linkages with internal labor market theory, and linkages with ecological and network theories that are beginning to emerge. New implications stratification theory and national opportunity structures, the dynamics of labor markets, and for research in aging are also indicated. From this review, we conclude that there is much to be gained from theoretical development at the interface of organizations and demography."

Organizational Demography

Organizational demography may be conveniently broken into four areas of theoretical development: intraorganizational demography, interorganizational demography, individual careers, and organizational and external populations. The bulk of the work has been conducted in the first three areas and deals with turnover of both personnel and jobs; growth, decline and stability; opportunity structures; and performance and policy. As for the latter, there are new insights into innovation and adaptation; cohort conflict and competition; labor costs and labor cuts; and EEO and Affirmative Action, particularly sex segregation. Here, only one of the four areas, intraorganizational demography, is extensively covered, with the other three areas briefly reviewed. Overall, the potential for organizational demography appears great, especially for yielding new insights into organizational behavior. There are also current linkages with internal labor market theory, and linkages with ecological and network theories are beginning to emerge. New implications for stratification theory and national opportunity structures, the dynamics of labor markets, and for research in aging are also indicated. From this review, we conclude that there is much to be gained from theoretical development at the interface of organizations and demography.

An Analysis of Mobility in Organizations

This paper aims to construct a model of mobility in organization such as promotion or lateral transfer. We distinguish two types of mobility. One is “relational mobility” : mobility along “mobility cluster”. Internal labor market theory of Doeringer and Piore is the theory of this type mobility. The other is “compulsive mobility” : mobility caused by scrap-and-build of jobs with the introduction of new technology or to save labor cost. Labor economists in Japan suggest that this type of mobility is one of distinct features of Japanese Labor-Management relations.To measure these two types of mobility, we re-examine the studies of mobility on the level of total society. Especially, we take notice of Yasuda's argument about compulsive mobility and pure mobility. We will show that “mobility table” analysis is not adequate to analyse mobility in organizations by three reasons : (1) ambiguity of times to be compared; (2) closed-system assumption; (3) confusion of moves and movers. Then, we propose open system “mobility accumulation table” analysis, which allowes people to enter and/or leave the organization in question. The frequency of moves from strutum i to strutum j is written in the (i, j) cells. From this table, we measure compulsive mobility to compare marginals of rows and columns, and measure relational mobility to standardize marginals. These two and the method of mostellerzing enable us to build a model to predict mobility in organizations. This model is applicable to the system where vacancies and superfluous members take place at the same time, which vacancy-chains model is not applicable to.

LDC Labor Markets: Applications of Internal Labor Market Theory

SummaryThis article does not attempt, nor has it delivered, a complete theory for the labor market in Egypt, let alone for LDC labor markets in general. The macro‐model developed here serves mainly to demonstrate the diaculties involved in formulating macro‐theories for LDC labor markets that, while necessarily simple, can still claim realism when confronted with certain fundamental “stylized h t s. Our considerations have, moreover, been limited to LDCs with mixed economies, using Egypt as the example. Hence, large‐scale modern industry was assumed to belong to the public sector which then emerges as the country dominant, nonagricultural employer. Agriculture is the second large and relatively homogeneous sector, in Egypt dominated by small holdings. In‐between we find the private, nonagricultural sector, overwhelmingly dominated by small‐scale enterprises with large numbers of the self‐employed, and with trade as the most important single activity. Labor is (in Egypt) generally unorganized or enrolled in government‐controlled unions, active mainly in the public sector and without much real say in matters of wages and salaries.It is in this specific institutional setting that I have tried to discuss the application of internal labor market theory. This theory has, to the best of my understanding, nothing to offer by way of explaining public sector behavior (which is of crucial importance for wage and employment formation in a mixed economy). However, adapted to the circumstances, internal labor market theory goes a long way toward explaining wages and employment in agriculture and the “informal” small‐scale sector. Our considerations, tentative though they are, do not point to any single, dominant labor market mechanism that could form the basis for a simple macro‐theory. Wage flexibility differs greatly between sectors, overstaEng may be a more important phenomenon than unemployment in some activities, and unemployment may be of both the voluntary and involuntary variety, with withdrawals from the labor market related to well‐defined reserve wages, and open unemployment related to internal labor market behavior.These considerations are based more on loose impressions than on solid facts. Further theorizing may be needed, but the development of labor market theory for LDCs has undoubtedly reached a point where progress depends critically upon painstaking empirical studies of basic labor market institutions such as employment and wage forms and responses, bargaining procedures, and conditions of both labor and output markets for small private enterprises in particular countries. Considerable work has been done in India but even here much remains for investigation. Studies of specific countries may, even for LDCs in rapid, turbulent transformation, disclose ongoing changes in institutions that for a full understanding of the labor market may be more important than the institutions themselves. Existing wage theory has little to offer for the analysis of such institutional change, but something may be learned from the American institutional school in labor economics whose leading exponent we are paying homage to with these papers.

After the Pioneers

This article uses data from a three-year study of one large industrial firm to illustrate fundamental distinctions between the pioneer era, when women and minorities struggled individually for access to predominantly white male jobs, and the postpioneer era that occurred after equal employment policies were institutionalized by the firm. Internal labor market theory provides a framework for analyzing the effects of organizational changes during the latter period. Our sources include intensive, structured interviews with 75 of the firm's blue-collar employees, 27 unstructured interviews with union officials, 388 responses to a mailed survey of blue-collar employees, and plantwide data on the employment status and job classifications of over 7000 blue-collar workers. We find that the 1978 affirmative action agreement did not address many of the organizational barriers at the plant level that impede women's access to and advancement in traditionally male jobs. Although the current policy has increased the number of women being hired, it may be promoting new patterns of sex and race segregation.