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.

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.
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.
These results suggest that firms meet the new skill requirements following the introduction of information technologies through adjustments on the external rather than internal labour market.
Finally, although less directly exposed to local labour market conditions, ILMs are not 'space-less' and through what Manwaring (1984) terms the extended internal labour market (EILM) are often strongly linked to the local labour market.
It outlines several areas where companies fail in their attempt to better manage their internal labour market, and offer a model by which companies should be able to improve their management techniques and create lasting, positive change in an organization.
This structure is in fact very similar to the internal labour market inherited from the old monopoly civil service, where direct recruitment to high grades seldom occurred.
The modern parallel to internal labour market theory is obvious, particularly to those that emphasise transaction cost foundations.
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.
These - which in the labour market include mandatory retirement, hierarchies within an internal labour market, promotion, even jobs per se - are what the author calls institutions.

Full browser ?