Labor market segmentation

Overview

Labor Market Segmentation is classified as the core, neo-classical economic theory, this economic system sees a market labor which consists of buyers and sellers in open competition with each other;which functions in the same way as other markets. There is a difference between these two homogeneous commodities, which is broken down as a primary sector and as secondary sector. [http://www.encyclopedia.com/doc/1O88-labourmarketsegmentation.html]

Historial Background

Labor Market Segmentation was derived in the early 1960’s. Labor Market Segmentation opened the eyes of many economists viewing the labor market as just a market with people with individual characteristics of education and motivation as well as technology playing a major factor in terms of producing output. This view later on helped us look at the demand-side of the market, the nature and strategy of the employers. The idea of non-competing groups has been developed in theories that are identified under the general label of labor-market segmentation theory.The two key formulations are split into labor-market theory and internal labor-market theory, both developed in the United States. The labor-market segmentation theory revolves around the identification of a split between two analytically divisions in the economy and the labor-market.

Two key sectors of Labor Market Segmentation: Primary and Secondary Sector

The Primary Sector

In a primary sector the workforce as a whole is motivated to serve their employer because of wages, health benefit, and pension and job security. Job market consists of majority blue collar and white collar jobs. The primary sector generally contains the higher-grade, higher-status, and better-paid jobs, with employers who offer the best terms and conditions. These jobs are usually considered to be the occupational labor-markets, some industrial labor-markets. The primary sector is sometimes sub-divided into an upper and lower level.The primary workers are trying to prove themselves to their employers by portraying their skills and educational credentials.

The Secondary Sector

Is called a secondary sector; a secondary job entitles management being in complete control because there is a larger turnout. Many in this job type either leave or get fired and get replaced soon after. These jobs give low emphasis on job morale and their workers lack motivation. The secondary 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 low, and terms and conditions of the job is not that best. [http://info.worldbank.org/etools/docs/library/235451/Fields%20note_jun06.pdf]

Theoretical Explanations

This model of the labor market segmentation has been developed over the years to accommodate the fact that different job professionals work in completely different job markets. For example, Lawyers and fashion designers work in different markets. Some of the major dividing-lines that have been identified are occupational, geographical, and industrial. Occupational labor-markets arise from the division of labor, increasing differentiation and specialization. These workers are unable to switch between occupations because they require different skills and extensive investment in training and qualifications. For example although nurses and doctors are comprised of separate occupational labor-markets even though they work side by side in the same organizations. For examples specifying the minimum qualifications and experience requirement it restricts the entry into an occupation even if they work side by side in an organization. Geographical labor-markets are also defined considering that neither employers nor workers can move to another location without acquiring considerable amount of costs. As a result wages can remain higher in big cities as opposed to smaller cities. For example there are a vast number of unemployed people in certain parts of the world as opposed to others primarily because of the demographics, is it a town, city or near to home work place. The Industrial labor-markets arise where employers in certain industries require particular skill or a combination of skills, and employees seek to keep workers for a long period of time after they have been trained. Some examples of industrial jobs would be, police officers, civil servants, teachers, nurses as well as employers, while exercising the same range of skills in their work while obtaining industry-standard terms of employment.

The workers differ in their tastes and preferences for leisure time rather than work and for financial reasons rather than rewards. Their investment is their education, training, work skills, and experience. But it still makes sense to analyze labor supply and demand in the aggregate.The primary sector and secondary sector, both these sectors possess different wages and each employment characteristics are different. The concepts of primary and secondary labor-markets have now passed into conventional thought, with the primary labor-market commonly understood to mean people with secure jobs and good conditions of work in public-sector employment, the large corporations and highly unionized industries; while the secondary labor-market is understood to cover small employers, non-unionized sectors of the economy, competitive industries such as retailing, where jobs are less secure and conditions of work and pay generally poorest. [http://myweb.lmu.edu/jdevine/notes/LaborMarketSegm.html]

The two markets are connected, with movement between them at specified ports of entry and exit. The jobs in the primary internal segment are those typical of the hard core of stable employees in a firm, need long on-the-job training in firm-specific skills, have security and good promotion prospects, a high span of discretion, and high material rewards. [4] Professional and skilled craft work requiring occupation-specific rather than firm-specific skills, and often supplied on a contract or self-employed basis. The secondary external segment provides jobs that are low skilled, offer little autonomy and responsibility, low and unstable earnings, and poor working conditions, including casual and seasonal work. The secondary internal sector offers jobs that are generally low grade but with some on-the-job training, security, and promotion prospects.

The concepts of primary and secondary labor-markets have now passed into conventional thought, with the primary labor-market commonly understood to mean people with secure jobs and good conditions of work in public-sector employment, the large corporations and highly unionized industries; while the secondary labor-market is understood to cover small employers, non-unionized sectors of the economy, competitive industries such as retailing, where jobs are less secure and conditions of work and pay generally poorest. [http://myweb.lmu.edu/jdevine/notes/LaborMarketSegm.html] .

Labor Market Segmentation Debates and Propositions

Labor incomes are the most important component of total incomes. An alternative position: Total incomes vary largely because of variation in capital incomes and other non-labor income sources.

Employment is important primarily as a means of raising incomes and thereby reducing poverty. An alternative position: The goal of policy is employment maximization or unemployment minimization.

There are multiple labor markets. An alternative position: There is one single labor market.

Workers differ in terms of skills. An alternative position: Labor is homogeneous.

For workers of any given skill type, there are better jobs and worse jobs. An alternative position: The law of one price holds in the labor market.

The various labor markets are linked to one another.An alternative position: Changing conditions in one labor market have no effect on other labor markets.

Workers maximize utility. In low-income countries, utility can usefully be thought of as a function of income alone, although sometimes utility is a function of working conditions as well as income. An alternative position: No single unified purpose guides workers’ behavior.

Firms maximize profits and make labor market decisions accordingly. An alternative position: Firms exist to serve the interests of multiple stakeholders, of whom workers are one.

The number of good jobs is limited. Workers who take up bad jobs do so in preference to unemployment. An alternative position: The number of good jobs is not limited. Each worker is doing the type of job that maximizes his/her utility.

Open unemployment is less important a problem than is working poverty. An alternative position: Unemployment is the main labor market problem [http://www.economyprofessor.com/economictheories/segmented-labor-market-theory.php]

Workers who are in the similar trade are treated differently according to the sector they are placed in. The differences in the labor market segmentation imply differences in the way which they are trained, allocated, organized and paid. This has to be directly related to the way in which the labor process is organized. The two sectors organize the skills and education credentials. [The Structuring of Labor Markets]

All employers should be able to receive the same employment standards examples, at least minimum wages, maximum hour laws, health laws etc. regardless of what sector they belong to. The management will not have complete control, there should be employment standards for all employees that allows them to monitor occupational safety, security, health safety and other required standards such as minimum wage requirement, maximum hour laws etc. [Labor Markets and Integrating National Economies]

References