DOCUMENT RESUME ED 048 457 VT 012 300 AUTHOR Doeringer, Peter B.; Piore, Michael J. TITLE Internal Labor Markets and Manpower Analysis. INSTITUTION Harvard Univ., Cambridge, Mass.; Massachusetts Inst. of Tech., Cambridge. SPONS AGENCY Manpower Administration (DOL), Washington, D.C. Office of Manpower Research. PUB DATE May 70 NOTE 344p. EDRS PRICE EDRS Price MF-$0.65 HC-$13.16 DESCRIPTORS *Business, Disadvantaged Groups, *Economic Research, Employment Opportunities, *Labor Economics, *Labor Market, Models, *Unemployment ABSTRACT Using data gathered in a series of interviews with management and union officials in over 75 companies between 1964 and 1969, this report analyzes the concept of the internal labor market and describes its relevance for federal manpower policy. The management interviews, which were mostly in personnel, industrial engineering, and operations areas of manufacturing companies, were supplemented by data on the disadvantaged provided by civil rights, poverty, and manpower agencies. The report utilizes the framework established in the study to show that the internal market does not imply inefficiency and may represent an improvement in dealing with structural unemployment. (BH) .4 /.. .118-1`;003 INTERNAL LABOR MARKETS AND MANPOWER ANALYSIS PETER B. DOERINGER Assistant Professor of Economics Harvard University MICHAEL J. PIORE Associate Profe s sor of Economics Massachusetts Institute of Technology ',Jay 1970 This research was preparedunder a contract with the Office of ManpowerResearch, U.S. Departmentof Labor, under the authorityof the Manpower Development and Training Act.Researchers undertakingsuch projects under the Government sponsorshipare encouraged to express their own judgementfreely.Therefore, points of view or opinions stated inthis document do not necessarily represent theofficial position of the Department of Labor. Y TABLE OF CONTENTS Chapter 1. Introduction Part One:The Theory of Internal Labor Markets 11. The. Origins of the Internal Labor Market 111. 'The Structure of the Internal Labor Market 1V. Wage Determination and the inteznal Labor Market Part Two:Manpower Analysis V. Manpower Adjustment and Labor Market Imbalances Vl. Technological Change and Adjustments in Job Content V11. Employment Discrimination V111. Low Income Employment and the Disadvantaged Labor Force lx.Summary and Conclusions Acknowledgements In this volume we have elaborated the theme of the internal labor market that we first developed in our doctoral dissertations completed at Harvard in 1966.This theme of analysis has been reshaped considerably as a result of our subsequent research and advisory activities and by countless discussions and seminars. We are indebted to an unusually large number of persons who have contributed to our research:to the many managers and union officials who generously devoted their time, and the resources of their organizations, to this study; to members of government and private agencies with whom we have worked in various capacities; and to our friends, associates, and wives who have commented on the project at various stages.In particular, we are grateful to John T. Dunlop who, as teacher and colleague, provided the guidance and challenge necessary to the formation of many of our concepts. -2- We have been the beneficiaries of considerable assistance in the preparation of the manuscript.Penny Feldman, David Gordon and Michael Reich provided much of the research under- lying our discussion of the disadvantaged labor force in Chapter VIII.Christine Bishop and James Zeanah were responsible for computer programming.Helen Blumen helped to document many of our references.June MacArthur edited the manuscript.Virginia Sullivan, Karen Garrett, Jean Neal, Ann Ring le, and Adrian Collier typed the numerous drafts and revisions. Finally, the financial assistance of the U. S .Department of Labor made this study possible.Much of the study was supported by the Manpower Administration, U.S. Department of Labor, as authorized by Title I of the Manpower Development and Training Act. Scholars performing research under such Government sponsorship are encouraged to express their own judgment freely, The study does not necessarily represent the Department's official opinion or policy. qnd we are solely responsible for the factual accuracy of all material developed in the study. P.B.D. M.J.P. Cambridge, Mass . May 1970 4z? CHAPTER I INTRODUCTION This volume is the outgrowth of a series of labor market studies conducted over the last six years.These studies reflect the variety of policy concerns of the 1960's--structural unemployment, technological change and automation, inflation, racial discrimination, and the employment and training of disadvantaged workers.These problems were initially approached with the traditional analytical tools of economic theory.But, in one way or another, each of the issues strained the conventional framework and required the introduction of a number of institutional or other ad hoc explanations. Reliance upon market imperfections or non-market institutions to explain deviations from the results predicted by conventional economic theory can be, at best, intellectually unappealing.At worst, it neglects, or even masks, variables which are significant for policy.In this volume, a number of these variables are identified and incorporated into a more comprehensive approach to labor market analysis than that provided by the competitive labor market model. -la- I.The Internal Labor Market The central concept around which the manuscript is organized is that of the internal labor marketan administrative unit, such as a manufacturing plant, within which the pricing and allocation of labor 1.2 1 is governed by a set of administrative rules and procedures. The internal market, governed by administrative rules, is to be dis- tinguished from the external labor market of conventional economic theory where pricing, allocating, and training decisions are governed directly by economic variables. These two markets are inter connected, however, and movement between them occurs at certain jobs classifi- cations which constitute ports of entry and exit to and from am in- 2 ternal labor market. The remainder of the jobs within the internal market are filled by the promotion or transfer of workers who have already gained entry to it. Consequently, these jobs are shielded from the direct influences of competitive forces in the external labor market. The rules governing internal labor allocation and pricing accord certain rights and privileges to the internal labor force which are not available to workers in the external labor market. The internal labor force, for example, has exclusive rights to jobs filled internally, and continuity of employment, even at entry ports, is protected from direct competition by workers in the external labor market. The phenomenon of internal labor markets is thus closely akin to the problems which other authors have identified as "indus- trial feudalism," "the bananization of labor markets," and "property 3 rights" in a job. 1John T. Dunlop, "Job Vacancy Measures and Economic Analysis," The Measurement and Interpretation of Job Vacancies: A Conference Report, National Bureau of Economic Research (New York:Columbia University Press, 1966). 2 See Clark Kerr, "The Balkanization of Labor Markets," in E. Wig ht Bakke, et. al., Labor Mobility and Economic Opportunity (Cambridge: Technology Press of MIT, 1954), pp. 92-110. 3Arthur M. Ross, "Do We Have a New Industrial Feudalism?" it I.3 The scope and structure of internal labor markets varies con- siderably among industries and occupations.The production and main- tenance ::nits of a steel plant with their limited entry ports and lengthy promotion lines, the garment factory with many entry ports, the military services, and the exclusive hiring hall in the building trades each constitute a type of internal market. However, because the research upon which this volume is based focussed primarily upon blue collar employment in manufacturing, the concepts and applications presented have particular relevance for this sector. Enterprise Markets For blue collar workers in manufacturing, the internal market is generally synononous with the establishment. While several dis- tinct types of internal labor market structures are found in manufac- turing establishments, the predominant pattern appears to be one in which production jobs are arranged in seniority districts or lines of progression. Entry job classifications tend to lie at the bottom of these lines and vacancies in other jobs are usually filled by the promotion of workers from the next lowest job classification in the line of progression. The criteria governing entry are fairly responsive to external market conditions. Thus the plant's "hiring standards" can vary wLth the level of unemployment, the wage rates offered by competitors, the characteristics of the local labor supply, and the like. In contrast, promotions to non-entry jobs and layoffs are generally governed by relatively fixed standards of seniority and ability. The particular American Economic Review, Vol. XLVIII, No. 5 (December 1958), pp. 914-15, and Frederick Meyers, Ownership of Jobs:A Comparative Study, Insti- tute of Industrial Relations, Monograph Series (Los Angeles:University of California, 1964),p. 11. 10 1.4 standards, and especially the relative weight given to seniority relative to ability, vary from one plant to another. In any given plant they are subjent to revision. But they do not change freely with