internal labour market

internal labour market

a MARKET for LABOUR which operates within the organization. In other words, recruits for JOB positions in the organization are sought from within the stock of existing employees. In the ‘pure’ form, recruits from the labour market outside are sought for the lowest level jobs only (‘points of entry’). These individuals then pass up through the organizational hierarchy, filling higher level posts as these become vacant. Economists and sociologists have discerned a long-term trend towards internalization of labour markets during which, as industrial societies and technology have developed, technology has become increasingly firm-specific. It has thus become increasingly difficult to find applicants already possessing suitable skills on the open market. The pay of employees in internal labour markets is set according to the firm's criteria and objectives. Some argue, therefore, that they are not really markets at all; the price of labour is not determined primarily by supply and demand.

The benefits of internalization stem from the individual becoming wedded to the organization by virtue of the fact that his or her skills and knowledge are not saleable elsewhere. The organization can invest heavily in training without fear of ‘poaching’ by other employers. A stock of skills and knowledge can therefore be built up. A potential disadvantage of internal labour markets is that the supply of ‘new blood’ is restricted and the organization may become insulated from new ideas.

Few organizations in the UK adopt the ‘pure’ form, though some have come close to it. Most modern large organizations use a mixture of external and internal labour markets. They have a number of points of entry (for example separate ones for production and managerial jobs) whilst jobs may be advertised both internally and externally, with the former often occurring first. See LABOUR MARKET.

Collins Dictionary of Business, 3rd ed. © 2002, 2005 C Pass, B Lowes, A Pendleton, L Chadwick, D O’Reilly and M Afferson
References in periodicals archive ?
Gradually, a consensus emerged in the Swiss parliament to find a way of managing immigration with internal labour market controls that avoided direct discrimination against EU workers.
Do tema gestao de pessoas e capital intelectual, o artigo "Internal Labour Market as Factor in the Carrer Success Perceived by an Engineer" estuda a problematica envolvendo as demandas dos profissionais quanto a carreira e a forma como as empresas atuam na gestao de carreiras e propoe sugestoes de como harmonizar estes dois aspectos.
Data that contain information on the total compensation package may provide a more complete understanding of the advantages to working in firms that export or, with an internal labour market, shelter some employees from external competition.
The "invisible hand" of the external labour market was supplanted by an internal labour market and the "visible hand" of HRM managers.
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It introduces Mercer's internal labour market (ILM) analysis, and its use of business impact modeling (BIM).
(The modern parallel to internal labour market theory is obvious, particularly to those that emphasise transaction cost foundations.) (17) The breaking of such a relationship means that costs are incurred by both sides.
The organisation will develop the employment characteristics typical of an internal labour market (ILM) when human capital requirements are firm specific and/or scarce in the external labour market.
Because they offer lower pay and benefits to employees and are less able to provide an internal labour market for trained employees, Storey maintains that, once trained, such employees are more likely to leave the firm.

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