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A Test of Dual Labor Market Theory

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  • Dickens, William T
  • Lang, Kevin

Abstract

Despite substantial differences in their views of the appropriate policy response to the existence of poverty, neither the proponents of dual market theory nor its critics have proposed potentially conclusive tests of the dual market hypothesis.This paper presents a test of the two central propositions of dual market theory -- 1) the existence of two distinct labor markets with different wage setting mechanisms and 2) the existence of barriers to mobility between the labor markets. We find considerable support for both hypothesis. Estimation of a switching model of wage determination with unknown regimes yields two distinct wage equations. The one which most workers are associated with closely resembles the standard human capital regression with significant returns to education and experience. The other equation is flat with no returns to human capital. These two equations resemble the predictions of dual market theory for the "primary" and "secondary" markets respectively. Further, we present evidence that(at least) some non-white workers are involuntarily confined to the secondary market. This crowding of minority workers into the low wage labor market accounts for a substantial portion of white/non-white wage differences. We interpret these results as providing empirical support for the dual market hypothesis and for recent theoretical work on efficiency wagemodels. In addition, combining the efficiency wage argument with the observation that much of the white/non-white wage difference is explained by the exclusion of non-whites from the primary sector suggests an explanation for the persistance of wage differences.

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Bibliographic Info

Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 75 (1985)
Issue (Month): 4 (September)
Pages: 792-805

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Handle: RePEc:aea:aecrev:v:75:y:1985:i:4:p:792-805

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  1. Paul Osterman, 1975. "An empirical study of labor market segmentation," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 28(4), pages 508-523, July.
  2. Stigler, George J & Becker, Gary S, 1977. "De Gustibus Non Est Disputandum," American Economic Review, American Economic Association, vol. 67(2), pages 76-90, March.
  3. Weiss, Andrew W, 1980. "Job Queues and Layoffs in Labor Markets with Flexible Wages," Journal of Political Economy, University of Chicago Press, vol. 88(3), pages 526-38, June.
  4. Oster, Gerry, 1979. "A Factor Analytic Test of the Theory of the Dual Economy," The Review of Economics and Statistics, MIT Press, vol. 61(1), pages 33-39, February.
  5. William T. Dickens, 1983. "The effect of company campaigns on certification elections: "Law and Reality" once again," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 36(4), pages 560-575, July.
  6. E.K. Berndt & B.H. Hall & R.E. Hall, 1974. "Estimation and Inference in Nonlinear Structural Models," NBER Chapters, in: Annals of Economic and Social Measurement, Volume 3, number 4, pages 103-116 National Bureau of Economic Research, Inc.
  7. Piore, Michael J, 1983. "Labor Market Segmentation: To What Paradigm Does It Belong?," American Economic Review, American Economic Association, vol. 73(2), pages 249-53, May.
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