Labor Mobility

Introduction

Theories of competitive labor market equilibrium argue that workers are allocated to firms so as to maximize the value of labor's product. Thus, within a competitive labor market individuals will search constantly for jobs in which they can be more productive and thus earn higher wages, while companies will also engage in search activities to attain more productive employees. Labor mobility is the term used to describe the movement of workers from one position within the labor market to another.

Since the labor market is never perfect (e.g., individuals may not be aware of the extent or value of their skills and may have incomplete information about opportunities in other companies; meanwhile, companies may be unaware of the true productivity of employees) nor static, perfect equilibrium will not be established and an element of labor mobility will always remain a feature of the market.

Discussion

Many of the rules which determine economic outcomes and social welfare originate within the firm and are, in a nontrivial sense, chosen by the firm. Because many workers spend long stretches of their careers within the shelter of enterprises, understanding these rules is very important. These rules have come to be characterized as the internal labor market (ILM).

The central idea of ILMs was set forth by Kerr (1954) in his description of “institutional labor markets.” Kerr argued that these labor markets created noncompeting groups, and that one of the central boundaries was between the firm and the external labor market. Kerr identified “ports of entry” as the link between the inside and outside and described the implications for labor mobility of the boundaries and rules. Dunlop (1966) coined the term “internal labor market” and provided a description of one of its central rules, that concerning job ladders. In the 1970s, Doeringer and Piore (1971) provided a full description of the rules of blue-collar ILMs as well as the trade-offs among rules (e.g., between hiring criteria and training procedures). Doeringer and Piore also began the process of linking analysis of ILMs back to mainstream labor economics through their discussion of how specific human capital helps to cement employee attachment to firms.

Internal labor markets attract scholars of divergent bents. For mainstream economists the challenge is to explain these rules in a framework that preserves the core ideas of maximization and efficiency. Institutional economists do not deny the impact of standard economic considerations, but they emphasize the interplay of economic, political, and social forces. This orientation has been reinforced by recent interest in international comparisons. There is also a vibrant sociology literature. Since stable work groups lead to the formation of norms, customs, and interpersonal comparisons, ILMs provide sociologists with an opportunity to illustrate and explore the importance of these phenomena. In addition, variation across enterprises in extent and content of rules suggests that sociological models which focus on the diffusion and adaption of institutional practices independent of their efficiency properties (e.g., the search for legitimacy via mimicry) can be fruitfully applied to ILMs.

The nature of research on ILMs has ...