What is Empirical evidence segmentation in labor market?

Answer 1

Labor Market: Labor market basically deals with the functioning of the market & dynamics of the labor. Labor markets function through the interaction of workers and employers. Labor economics looks at the suppliers of labor services (workers), the demanders of labor services (employers), and attempts to understand the resulting pattern of wages, employment, and income. Labor market postulates the services / work done by human beings (man power). The labor related theories have created the concept called human capital. There are many arguments that Labor Market Segmentation theory is a good alternative to standard views of the labor market. Since it is sometimes argued that labor market segmentation theory is un-testable. Labor-market segmentation: In essence, Neo-Classical Economics theory sees a market for labor, with buyers and sellers in open competition with each other, which functions in broadly the same way as other markets. There are differences of course. It is recognized that labor is not a completely homogeneous commodity: workers differ in their tastes and preferences for leisure rather than work and for monetary rather than non-monetary rewards; they differ also in human capital, their investment in education and training, work skills, and experience. But it still makes sense to analyses labor supply and demand in the aggregate.

This model of the labor market has been refined over the years to accommodate the fact that doctors and dress designers, for example, work in entirely different markets. The British economist Alfred Marshall first introduced the idea of non-competing groups in the labor-market in the 1880s. The most significant dividing-lines have been identified as occupational, geographical, and industrial. Occupational labor-markets arise from the division of labor, increasing differentiation and specialization, with workers unable to switch between occupations requiring significantly different skills and extensive investment in training and qualifications. Nurses and doctors, for example, constitute separate occupational labor-markets, even if they work side by side in the same organizations. By restricting entry to an occupation, for example by specifying the minimum qualifications and experience required, those already in it can control the supply of labor and help to push up their wages. Labor-markets are also defined spatially, given that neither employers nor workers can move to another location without incurring substantial costs. As a result wages can remain high in big cities, for example, even when there are substantial numbers of unemployed in other parts of the country. The term 'local labor-market' is often used in reference to the market for jobs within a particular locale-such as a travel-to-work area, town, or city. Industrial labor-markets arise where employers in certain industries require particular skills, or combinations of skill, and seek to retain workers long-term after they have been trained. For example, police officers, civil servants, and coal-miners may be mobile across regions of the country and even employers, while exercising the same range of skills in their work, and obtaining similar or industry-standard terms of employment.

The idea of non-competing groups has been developed much further in theories that are identified under the general label of labour-market segmentation theory. The two key formulations are dual (or split) labor-market theory and internal labor-market theory

Dual labor-market theory revolves around the identification of a split between two analytically distinct sectors in the economy and national labor-market: a primary sector and secondary sector with quite different wage and employment characteristics and processes. The theory states that job mobility between the two labor-markets is very restricted in normal circumstances; in effect workers in the secondary sector are trapped there unless, they obtain higher qualifications. The secondary sector is marked by pervasive under-employment and unemployment; jobs are mostly low-skilled, require relatively little training, and can be learnt relatively quickly on the job. There are few barriers to job mobility within the secondary sector. Because the jobs are unattractive there is little incentive to stay, and there are high levels of labor turnover, with workers moving on to other jobs or employers. Wages are generally low, and terms and conditions the poorest offered. Theorists differ in their emphasis on 'bad' jobs in terms of pay and conditions, or on relatively unskilled work, and on whether the primary and secondary sectors also have distinctively different work cultures. The primary sector generally contains the higher-grade, higher-status, and better-paid jobs, with employers who offer the best terms and conditions. In some formulations the emphasis is on occupational labor-markets with controlled entry to them; in others the emphasis is on industrial labor-markets and the characteristics of employers. The primary sector is sometimes sub-divided into an upper and lower tier. These economic concepts of primary and secondary sectors draw on and have close similarities with sociological theory on social stratification (structural social inequality) and social mobilink between classes. Similarly, the theory of internal labor-markets has close parallels in sociological debates of labor-markets, industrial feudalism, and the question of property rights in a job. Labor-market segmentation theory has been more accessible to sociologists than most classical economic theory (laissez-faire economy), and has facilitated multi-disciplinary research on labor-market functioning.

The internal labor-market is an administrative unit, such as an office or factory, where the levels of employment and wages are determined by a set of internal administrative rules and procedures. It is quite separate from the external labor-market of conventional economic theory, where pricing, allocating, and training decisions are controlled by economic variables. The two markets are connected, with movement between them at specified ports of entry and exit. Otherwise jobs in the internal market are filled by the promotion or transfer of workers who have already gained entry. Jobs in the internal market are shielded from the direct influences of competitive forces in the external market. Another formulation of this perspective is insider-outsider analysis, which identifies the wage advantage attached to certain labour-market positions, types of employer, or industry.

by: Schafaq Chohan