Internal Labor Markets in Equilibrium

Equilibrium in Labor Markets with Few Firms

We study competition between firms in labor markets, following a combinatorial model suggested by Kelso and Crawford [14]. In this model, each firm is trying to recruit workers by offering a higher salary than its competitors, and its production function defines the utility generated from any actual set of recruited workers. We define two natural classes of production functions for firms, where...

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...