Internal Labor Markets: A Case Study

Large Firms and Internal Labor Markets

This paper introduces a model of internal labor markets that is consistent with the observed differences between workers in large and small firms with respect to wages and separation rates. In particular, firms constitute labor markets with no search frictions. Workers are free to move within a firm at no cost, whereas switching across firms is costly. If the quality of a match between a worker...

Managers, Mentoring, and Internal Labor Markets

We propose a theory of production and allocation of human capital in firms that focuses on the role of line managers, who both invest time to mentor junior employees, and acquire information about the juniors’abilities that is valuable for job assignments. We argue that this dual role of managers implies that internal labor markets and incentive contracts for managers must be determined jointly...

Internal Labor Markets and Manpower Analysis

A Theory of Careers in Hierarchical Internal Labor Markets

The paper develops a model that explains a broad pattern of evidence on careers in multilevel organizations. It shows how job mobility inside firms depends on changes in the size of the organization. Promotion rates rise (fall) during a corporate expansion (contraction). Economic conditions therefore affect individual career mobility and earnings profiles. The model analyzes how the interaction...

Market Frictions and the Competitive Advantage of Internal Labor Markets

We show that frictions in labor and capital markets can be a source of competitive advantage for a¢ liates of corporate groups over standalone …rms in environments where bene…ts from internal markets’‡exibility are high. We argue that the advantage of ‡exibility in changing labor inputs is related to how di¢ cult it is to change capital inputs. We predict that if substituting labor with capital...