University of Nebraska - Lincoln DigitalCommons@University of Nebraska - Lincoln

Economics Department Faculty Publications Economics Department

5-1-1973

Dual Labor Markets: A Theory of Labor Market Segmentation

Michael Reich Boston University, [email protected]

David M. Gordon Harvard University, [email protected]

Richard C. Edwards Harvard University, [email protected]

Follow this and additional works at: https://digitalcommons.unl.edu/econfacpub

Part of the Economics Commons

Reich, Michael; Gordon, David M.; and Edwards, Richard C., "Dual Labor Markets: A Theory of Labor Market Segmentation" (1973). Economics Department Faculty Publications. 3. https://digitalcommons.unl.edu/econfacpub/3

This Article is brought to you for free and open access by the Economics Department at DigitalCommons@University of Nebraska - Lincoln. It has been accepted for inclusion in Economics Department Faculty Publications by an authorized administrator of DigitalCommons@University of Nebraska - Lincoln. American Economic Review 63:2 (May 1973), pp. 359-365. Copyright © 1973 American Economic Association. Used by permission.

DUAL LABOR MARKETS 1 A Theory of Labor Market Segmentation

A growing body of empirical research marize an emerging radical theory of labor has documented persistent divisions market segmentation; we develop the among American workers: divisions by full arguments in Reich, Gordon, and race, sex, educational credentials, industry Edwards. The theory argues that political grouping, and so forth (F. B. Weisskoff, and economic forces within American B. Bluestone, S. Bowles and H. Gintis, capitalism have given rise to and per- D. Gordon, 1971 and 1972, B. Harrison, petuated segmented labor markets, and M. Reich, H. Wachtel and C. Betsey, that it is incorrect to view the sources of and H. Zellner). These groups seem to segmented markets as exogenous to the operate in different labor markets, with economic system. different working conditions, different promotional opportunities, different Present Labor Market Segmentation wages, and different market institutions. We define labor market segmentation These continuing labor market divisions as the historical process whereby political- pose anomalies for neoclassical economists. economic forces encourage the division of Orthodox theory assumes that profit- the labor market into separate submarkets, maximizing employers evaluate workers or segments, distinguished by different in terms of their individual characteristics labor market characteristics and be- and predicts that labor market differences havioral rules. Segmented labor markets among groups will decline over time be- are thus the outcome of a segmentation cause of competitive mechanisms (K. process. Segments may cut horizontally Arrow). But by most measures, the labor across the occupational hierarchy as well market differences among groups have as vertically. We suggest that present not been disappearing (R. Edwards, M. labor market conditions can most usefully Reich, and T. Weisskopf, chs. 5, 7, 8). be understood as the outcome of four seg- The continuing importance of groups in mentation processes. the labor market thus is neither ex- plained nor predicted by orthodox theory. 1. Segmentation into Primary Why is the labor force in general still and Secondary Markets ~ so fragmented? Why are group charac- The primary and secondary segments, teristics repeatedly so important in the to use the terminology of dual labor I labor market? In this paper, we sum- market theory, are differentiated mainly by stability characteristics. Primary jobs * Assistant Professor of economics, Boston Univer- require and develop stable working habits ; sity, and Research Associates, Center for Educational Policy Research, Harvard University, respectively. This skills are often acquired on the job ; wages 1 research was supported by a grant from the Manpower are relatively high; and job ladders exist. Administration, U.S. Department of Labor. Needless to say, we alone are responsible for the views expressed in Secondary jobs do not require and often this paper. discourage stable working habits; wages 360 AMERICAN ECONOMIC ASSOCIATION MAY 1973 1

are low; turnover is high; and job ladders The Historical Origins of Labor are few. Secondary jobs are mainly Market Segmentation (though not exclusively) filled by minority The present divisions of the labor workers, women, and youth. market are best understood from an his- torical analysis of their origins. We argue 2. Segmentation Within the that segmentation arose during the transi- Primary Sector tion from competitive to monopoly cap- Within the primary sector we see a seg- italism. Our historical analysis focuses on mentation between what we call "sub- the era of monopoly capitalism, from ordinate" and "independent" primary roughly 1890 to the present, with special jobs. Subordinate primary jobs are rou- emphasis on the earlier transitional years. tinized and encourage personality char- During the preceding period of com- acteristics of dependability, discipline, petitive capitalism, labor market develop- responsiveness to rules and authority, and ments pointed toward the progressive acceptance of a firm's goals. Both factory homogenizatiorc of the labor force, not and office jobs are present in this segment. toward segmentation. The factory system In contrast, independent primary jobs en- eliminated many skilled craft occupations, courage and require creative, problem- creating large pools of semiskilled jobs solving, self-initiating characteristics and (N. Ware). Production for a mass market of ten have professional standards for and increased mechanization forged stan- work. Voluntary turnover is high and in- dardized work requirements. Large es- dividual motivation and achievement are tablishments drew greater numbers of highly rewarded. workers into common working environ- ments. 3. Segmentation by Race The increasingly homogeneous and pro- letarian character of the work force gen- While minority workers are present in erated tensions which were manifest in secondary, subordinate primary and in- the tremendous upsurge in labor conflict dependent primary segments they often that accompanied the emergence of mo- face distinct segments within those sub- nopoly capitalism: in railroads dating markets. Certain jobs are "race-typed," back to 1877, in steel before 1901 and segregated by prejudice and by labor again in 1919, in coal mining during and market institutions. Geographic separa- after the First World War, in textile mills tion plays an important role in maintain- throughout this period, and in countless ing divisions between race segments. other plants and industries around the country. The success of the Industrial 4. Segmentation by Sex Workers of the World (IWW),the emer- I Certain jobs have generally been re- gence of a strong Socialist party, the I stricted to men; others to women. Wages general (as opposed to industry-specific) 1 in the female segment are usually lower strikes in Seattle and New Orleans, the than in comparable male jobs; female jobs mass labor revolts in 1919 and 1920, and often require and encourage a "serving the increasingly national character of the mentalityv-an orientation toward pro- labor movement throughout this period viding services to other people and par- indicated a widespread and growing op- ticularly to men. These characteristics are position to capitalist hegemony in general. encouraged by family and schooling in- More and more, strikes begun "simply" stitutions. over wage issues often escalated to much ~ VOL. 63 NO. 2 DUAL LABOR MARKETS 361

more general issues (J. Brecher, J. from conscious strategies and systemic Commons). forces. At the same time that the work force was becoming more homogeneous, those Conscious Ejorts oligopolistic corporations that still dom- Monopoly capitalist corporations de- inate the economy today began to emerge vised deliberate strategies to resolve the and to consolidate their power. The cap- contradictions between the increased pro- tains of the new monopoly capitalist era, letarianization of the work force and the now released from short-run competitive growth and consolidation of concentrated pressures and in search of long-run stabil- corporate power. The central thrust of ity, turned to the capture of strategic the new strategies was to break down the control over product and factor markets. increasingly unified worker interests that Their new concerns were the creation and grew out of the proletarianization of work exploitation of monopolistic control, rather and the concentration of workers in urban than the allocational calculus of short-run areas. As exhibited in several aspects of profit-maximization. (For examples see these large firms' operations, this effort A. Chandler, B. Emmet and J. Jeuck, R. aimed to divide the labor force into various Hidy and M. Hidy, and A. Nevins.) segments so that the actual experiences of The new needs of monopoly capitalism workers were different and the basis of for control were threatened by the con- their common opposition to capitalists sequences of homogenization and pro- undermined. letarianization of the work force. Evidence The first element in the new strategy in- abounds that large corporations were volved the internal relations of the firm. painfully aware of the potentially revolu- The tremendous growth in the size of tionary character of these movements. As monopoly capitalist work forces, along Commons notes, the employers' "mass with the demise of craft-governed pro- offensive'' on unions between 1903 and duction, necessitated a change in the 1908 was more of an ideological crusade authority relations upon which control in than a matter of specific demands. The the firm rested (R. Edwards). Efforts simultaneous formation of the National toward change in this area included Civic Federation (NCF), a group dom- Taylorism and Scientific Management, the inated by large "progressive" capitalists, establishment of personnel departments, was another explicit manifestation of the experimentation with different organiza- fundamental crises facing the capitalist tional structures, the use of industrial class (J. Weinstein). The historical anal- psychologists, "human relations experts" ysis which follows suggests that to meet this threat employers actively and con- I We have paid more attention in this brief summary sciously fostered labor market segmenta- to employers' conscious efforts because the other papers l tion in order to "divide and conquer" presented in this session provide a complementary em- phasis on systemic forces. We fully develop both ex- the labor force. Moreover, the efforts of planations in Reich, Gordon, and Edwards. monopolistic corporations to gain greater These efforts were "conscious" in the following control of their product markets led to a sense. Capitalists faced immediate problems and events and devised strategies to meet them. Successful strate- dichotomization of the industrial struc- gies survived and were copied. These efforts were not ture which had the indirect and unin- "conscious" in the sense that those who undertook them tended, though not undesired, effect of understood fully the historical forces acting upon them or all the ramifications of their policies. As we argue in reinforcing their conscious strategies. Thus the text, in certain cases capitalists acted out of a labor market segmentation arose both broader class consciousness. 362 AMERICAN ECONOMIC ASSOCIATION MAY 1973 and others to devise appropriate "mo- nounced form in the advanced industries. tivating" incentives, and so forth (L. At Ford, for example, education for the Baritz, A. Chandler, S. Marglin and F. workers' children, credit, and other bene- Miller and M. Coghill). From this effort fits were dependent on the workers' con- emerged the intensification of hierarchical tinued employment by the firm and there- control, particularly the "bureaucratic fore tied the worker more securely to the form" of modern corporations. In the firm. For these workers, the loss of one's steel industry, for example, a whole new job meant a complete disruption in all system of stratified jobs was introduced aspects of the family's life. Likewise, shortly after the formation of U.S. Steel seniority benefits were lost when workers (K. Stone). The effect of bureaucratiza- switched companies (Weinstein). As in- tion was to establish a rigidly graded dustrial unions gained power, they trans- hierarchy of jobs and power by which formed some of these firm-specific benefits "top-down" authority could be exercised. to industry-wide privileges. The net effect The restructuring of the internal rela- was an intensification not only of internal tions of the firm furthered labor market segmentation, but also of segmentation by segmentation through the creation of seg- industry, which, as we discuss in the next mented "internal labor markets." Job section, had other origins as well. ladders were created, with definite "entry- At the same time that firms were seg- level" jobs and patterns of promotion. menting their internal labor markets, sim- White-collar workers entered the firm's ilar efforts were under way with respect work force and were promoted within it in to the firm's external relations. Employers different ways from the blue-collar pro- quite consciously exploited race, ethnic, duction force. Workers not having the and sex antagonisms in order to undercut qualifications for particular entry-level unionism and break strikes. In numerous jobs were excluded from access to that en- instances during the consolidation of tire job ladder. In response, unions often monopoly capitalism, employers manipu- sought to gain freedom from the arbitrary lated the mechanisms of labor supply in discretionary power of supervisors by de- order to import blacks as strikebreakers, manding a seniority criterion for promo- and racial hostility was stirred up to de- tion. In such cases, the union essentially flect class conflicts into race conflicts. For took over the management of the internal example, during the steel strike of 1919, labor markets: they agreed to allocate one of the critical points in U.S. history, workers and discipline recalcitrants, help- some 30,000 to 40,000 blacks were im- ing legitimize the internal market in re- ported as strikebreakers in a matter of a turn for a degree of control over its opera- few weeks. Employers also often trans- tion (P. Doeringer and M. Piore). formed jobs into "female jobs" in order to One such effort at internal control render those jobs less susceptible to eventually resulted in segmentation by unionization (Brecher, D. Brody, Com- industry. Firms had initially attempted to mons). raise the cost to workers of leaving in- Employers also consciously manipulated dividual companies (but not the cost of ethnic antagonisms to achieve segmenta- entering) by restricting certain benefits tion. Employers often hired groups from to continued employment in that com- rival nationalities in the same plant or in pany. Part of this strategy was "welfare different plants. During labor unrest the capitalism" which emerged from the NCF companies sent spies and rumor mongers in particular, and achieved most pro- to each camp, stirring up fears, hatred, VOL. 63 NO. 2 DUAL LABOR MARKETS 363 0 and antagonisms of other groups. The emergence of a monopolistic core in the strategy was most successful when many economy sharply accentuated some sys- immigrant groups had little command of temic market forces that stimulated and English (Brecher, Brody) . reinforced segmentation. As different firms The manipulation of ethnic differences and industries grew at different rates, a was, however, subject to two grave limita- dichotomization of industrial structure de- tions as a tool in the strategy of "divide veloped (R. Averitt, T. Vietorisz and B. and conquer." First, increasing English Harrison, and J. OIConnor). The larger, literacy among immigrants allowed them more capi tal-in tensive firms were generally to communicate more directly with each sheltered by barriers to entry, enjoyed other; second, mass immigration ended in technological, market power, and financial 1924. Corporations then looked to other economies of scale and generated higher segmentations of more lasting significance. rates of profit and growth than their Employers also tried to weaken the smaller, labor-intensive competitive coun- union movement by favoring the conserva- terparts. However, it did not turn out tive "business-oriented" craft unions that the monopolistic core firms were against the newer "social-oriented" in- wholly to swallow up the competitive dustrial unions. An ideology of corporate periphery firms. liberalism toward labor was articulated Given their large capital investments, around the turn of the century in the the large monopolistic corporations re- NCF. Corporate liberalism recognized quired stable market demand and stable the potential gains of legitimizing some planning horizons in order to insure that unions but not others; the NCF worked their investments would not go unutilized jointly with the craft-dominated American (J. K. Galbraith). Where demand was Federation of Labor to undermine the cyclical, seasonal, or otherwise unstable, more militant industrial unions, the So- production within the monopolistic en- cialist party, and the IWW (Weinstein). vironment became increasingly unsuit- As the period progressed, employers able. More and more, production of cer- also turned to a relatively new divisive tain products was subcontracted or "ex- means, the use of educational "creden- ported" to small, more competitive and tials." For the first time, educational less capital-intensive firms on the indus- credentials were used to regularize skill re- trial periphery. quirements for jobs. Employers played an Along with the dualism in the indus- active role in molding educational institu- trial structure, there developed a corre- tions to serve these channeling functions. sponding dualism of working environ- The new requirements helped maintain ments, wages, and mobility patterns. the somewhat artificial distinctions be- Monopoly corporations, with more stable I tween factory workers and those in production and sales, developed job struc- 1 routinized office jobs and helped generate tures and internal relations reflecting that some strong divisions within the office be- stability. For example, the bureaucratiza- tween semiskilled white-collar workers tion of work rewarded and elicited stable and their more highly skilled office mates work habits in employees. In peripheral (Bowles, Bowles and Gintis, Cohen and firms, where product demand was un- , Lazerson and Edwards). stable, jobs and workers tended to be marked also by instability. The result was Systemic Forces the dichotomization of the urban labor The rise of giant corporations and the market into "primary" and "secondary" 364 AMEqICAN ECONOMIC ASSOCIATION MAY 1973

sectors, as the dual labor market theory pirations for mobility. Less pressure is has proposed (Gordon, 1972, Piore). then placed on other social institutions- In addition, certain systemic forces in- the schools and the family, for example- tensified segmentation within corpora- that reproduce the class structure. Third, tions in the primary sector. As Piore has division of workers into segments legi- argued, the evolution of technology within timizes inequalities in authority and con- primary work places tended to promote trol between superiors and subordinates. distinctions between jobs requiring gen- For example, institutional sexism and eral and specific skills. As new tech- racism reinforce the industrial authority nologies emerged which replicated these of white male foremen. differential skill requirements, employers found that they could most easily train Political Implications for particular jobs those workers who had already developed those different kinds One of the principal barriers to united of skills. As highly technical jobs evolved anticapitalist opposition among workers in which the application of generalized, has been the evolution and persistence of problem-solving techniques were required, labor market segmentation. This seg- for instance, employers found that they mentation underlies the current state of could get the most out of those who had variegation in class consciousness among already developed those traits. Initial different groups of workers. A better un- differences in productive capacities were derstanding of the endogenous sources of inevitably reinforced. uneven levels of consciousness helps to explain the difficulties involved in over- The Social Functions of coming divisions among workers. None- Labor Market Segmentation theless, if we more clearly understand the As the preceding historical analysis has sources of our divisions, we may be able argued, labor market segmentation is to see more clearly how to overcome them. intimately related to the dynamics of monopoly capitalism. Understanding its REFERENCES I origins, we are now in a position to assess K. Arrow, "Some Models of Racial Discrimi- its social importance. nation in the Labor Force," in A. Pascal, ed., Labor market segmentation arose and The American Economy in Black and White, is perpetuated because it is functional- Santa Monica 1971. that is, it facilitates the operation of R. Averitt, The Dual Economy, New York capitalist institutions. Segmentation is 1967. functional primarily because it helps re- L. Baritz, Servants of Power, Middletown, produce capitalist hegemony. First, as the Conn. 1964. historical analysis makes quite clear, B. Bluestone, "Institutional and Industrial De- segmentation divides workers and fore- terminants of Wage Differentials," mimeo, stalls potential movements uniting all Boston College 1971. S. Bowles, "Understanding Unequal Economic workers against employers. (For an in- Opportunity," Amer. Econ. Rev., Proc., May teresting analysis, see C. Kerr and A. 1973. Siegel) . Second, segmentation establishes and H. Gintis, "IQ in the U.S. Social "fire trails" across vertical job ladders Structure," Social Policy, Jan.-Feb. 1973. and, to the extent that workers perceive J. Brecher, Strike!, San Francisco 1972. separate segments with different criteria D. Brody, Steelworkers: The Non-Union Era, for access, workers limit their own as- New York 1965. VOL. 63 NO. 2 DUAL LABOR MARKETS 365

A. Chandler, Strategy and Structure, New Sources of Personnel Work, Ithaca 1961. York 1966. A. Nevins, Ford: The Times, The Man, The D. Cohen and M. Lazerson, "Education and Company, New York 1954. the Industrial Order," Socialist Revolutio~i, J. O'Connor, "Inflation, Fiscal Crisis, and the Mar.-Apr. 1972. American Working Class," Socialist Revolu- J. Commons, History of Labor in the United tion, Mar.-Apr. 1972. States, New York 1935. M. Piore, "Notes for Theory of Labor Market P. Doeringer and M. Piore, Internal Labor Stratification," Working Paper No. 95, Markets and Manpower Analysis, Lexing- Dept. of Econ., Mass. Instit. of Tech. Oct. ton, Mass. 1972. 1972. R. Edwards, "Alienation and Inequality: Capi- M. Reich, "The Economics of Racism," in talist Relations of Production in Bureau- D. Gordon, ed., Problems in Political Econ- cratic Enterprises," unpublished Ph.D. dis- omy, Lexington, Mass. 1971. sertation, Harvard Univ. 1972. , D. Gordon and R. Edwards, "Labor M. Reich and T. Weisskopf, The Market Segmentation in American Capital- Capitalist System, Englewood Cliffs 1972. ism," forthcoming 1973. B. Emrnet and J. Jeuck, Catalogues and Count- K. Stone, "Labor Management and the Origin ers, Chicago 1950. of Job Structures in the Steel Industry," J. K. Galbraith, The New Industrial State, mimeo, Harvard Univ. 1973. Boston 1967. T. Vietorisz and B. Harrison, "Labor Market D. Gordon, "Class, Productivity, and the Segmentation: Positive Feedback and Di- Ghetto: A Study of Labor Market Stratifica- vergent Development," Amer. Econ. Rev., tion," unpublished Ph.D. dissertation, Har- Proc., May 1973. vard Univ. 1971. H. Wachtel and C. Betsey, "Low Wage Work- , Theories of Poverty and Underem- ers and the Dual Labor Market," mimeo, ployment, Lexington, Mass. 1972. American Univ., Apr. 1972. B. Harrison, Education, Training and the N. Ware, The Industrial Worker, 1840-1860, Urban Ghetto, Baltimore 1972. Chicago 1964. R. Hidy and M. Hidy, Pioneering in Big Busi- J. Weinstein, The Corporate Ideal in the Lib- ness 1882-1911, New York 1955. eral State, Boston 1967. C. Kerr and A. Siegel, "The Interindustry Pro- F. B. Weisskoff, "Women's Place in the Labor pensity to Strike," in A. Flanders, ed., Col- Market," Amer. Econ. Rev., Proc., May lective Bargaining, Baltimore 1969. 1972, 62, 161-166. S. Marglin, "What Do Bosses Do?", mimeo, H. Zellner, "Discrimination Against Women, Harvard Univ. 1971. Occupational Segregation, and the Relative F. Miller and M. Coghill, The Historical Wage," Amer. Econ. Rev., Proc., May 1972.