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Internal and External Labor Markets: A Personnel Economics Approach

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Author Info
Edward P. Lazear
Paul Oyer

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Abstract

Internal labor markets are those where workers are hired into entry level jobs and higher levels are filled from within. Wages are determined internally and may be quite free of market pressure. External labor markets imply that workers move somewhat fluidly between firms and wages are determined by some aggregate process where firms do not have significant discretion over wage setting. There are a number of theories that lead to internal labor markets. Using data from Sweden from the late 1980s, it is found that although there is significant evidence of internal promotion being important, a significant external market exists that affects both wage setting and hiring patterns. Even in Sweden, which most would not choose as the best example of a free labor market, external factors seem to create strong discipline on the ability of firms to set wages.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10192.

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Date of creation: Dec 2003
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Handle: RePEc:nbr:nberwo:10192

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M5 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Edward P. Lazear & Sherwin Rosen, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," NBER Working Papers 0401, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Chan, William, 1996. "External Recruitment versus Internal Promotion," Journal of Labor Economics, University of Chicago Press, vol. 14(4), pages 555-70, October. [Downloadable!] (restricted)
  3. Rosen, Sherwin, 1974. "Hedonic Prices and Implicit Markets: Product Differentiation in Pure Competition," Journal of Political Economy, University of Chicago Press, vol. 82(1), pages 34-55, Jan.-Feb.. [Downloadable!] (restricted)
  4. Michael Waldman, 1984. "Job Assignments, Signalling, and Efficiency," RAND Journal of Economics, The RAND Corporation, vol. 15(2), pages 255-267, Summer. [Downloadable!] (restricted)
    Other versions:
  5. Gibbs, Michael, 1995. "Incentive compensation in a corporate hierarchy," Journal of Accounting and Economics, Elsevier, vol. 19(2-3), pages 247-277, April. [Downloadable!] (restricted)
  6. Lazear, E.P., 1990. "The Job as a Concept," Papers e-90-24, Stanford - Hoover Institution.
  7. Gary S. Becker, 1962. "Investment in Human Capital: A Theoretical Analysis," Journal of Political Economy, University of Chicago Press, vol. 70, pages 9. [Downloadable!] (restricted)
  8. John M. Abowd & John Haltiwanger & Julia I. Lane & Kristin Sandusky, 2001. "Within and Between Firm Changes in Human Capital, Technology, and Productivity Preliminary and incomplete," Technical Papers 2001-03, Longitudinal Employer-Household Dynamics, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  9. Baker, George & Gibbs, Michael & Holmstrom, Bengt, 1994. "The Internal Economics of the Firm: Evidence from Personnel Data," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 881-919, November. [Downloadable!] (restricted)
  10. Lindbeck, Assar & Snower, Dennis J, 1986. "Wage Setting, Unemployment, and Insider-Outsider Relations," American Economic Review, American Economic Association, vol. 76(2), pages 235-39, May.
  11. Lazear, Edward P, 1979. "Why Is There Mandatory Retirement?," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1261-84, December. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Mehmet Bac & Serife Genc, 2009. "The French first employment contract: efficient screening device or Kleenex contract?," Journal of Economics, Springer, vol. 98(1), pages 77-88, September. [Downloadable!] (restricted)
  2. Jan Zabojnik, 2008. "Promotion Tournaments in Market Equilibrium," Working Papers 1193, Queen's University, Department of Economics. [Downloadable!]
  3. Davis, Elizabeth & Freedman, Matthew & Lane, Julia & McCall, Brian & Nestoriak, Nicole & Park, Timothy, 2005. "Product Market Competition and Human Resource Practices: An Analysis of the Retail Food Sector," Working Papers 14349, University of Minnesota, The Food Industry Center. [Downloadable!]
    Other versions:
  4. Thomas Dohmen & Hartmut Lehmann & Mark E. Schaffer, 2008. "Wage Policies of a Russian Firm and the Financial Crisis of 1998: Evidence from Personnel Data - 1997 to 2002," ESCIRRU Working Papers 4, DIW Berlin, German Institute for Economic Research. [Downloadable!]
    Other versions:
  5. Filipe Almeida-Santos & Karen Mumford, 2006. "Employee Training, Wage Dispersion and Equality in Britain," IZA Discussion Papers 2276, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
  6. Pablo Acosta, 2004. "Promotions, State Dependence and Intrafirm Job Mobility: Evidence From Personnel Records," Econometric Society 2004 North American Summer Meetings 585, Econometric Society. [Downloadable!]
  7. Chris Doucouliagos & Phillip Hone & Mehmet Ulubasoglu, 2006. "Discrimination, Peformance and Career Progression in Australian Public Sector Labor Markets," Economics Series 2006_07, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance. [Downloadable!]
  8. Carlos Carrillo-Tudela, 2009. "An Equilibrium Search Model with Optimal Wage-Experience Contracts," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 12(1), pages 108-128, January. [Downloadable!] (restricted)
    Other versions:
  9. Edward Lazear & Paul Oyer, 2004. "The Structure of Wages and Internal Mobility," American Economic Review, American Economic Association, vol. 94(2), pages 212-216, May. [Downloadable!]
  10. Bratti, Massimiliano & Staffolani, Stefano, 2005. "Effort-Based Career Opportunities and Working Time," IZA Discussion Papers 1474, Institute for the Study of Labor (IZA). [Downloadable!]
    Other versions:
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