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The rise and decline(?) of U.S. internal labor markets

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  • Erica Groshen
  • David Levine

Abstract

Many employers adopt practices that insulate their workforces from the outside labor market. One defining characteristic of such an "internal labor market" is a company wage policy that diverges from that of the external market. These divergences may occur for an entire employer on average, or for a subset of occupations at an employer. This paper examines the changing magnitude and persistence of both types of divergence over the last 40 years. We analyze a unique salary survey with detailed microdata on the pay practices of 228 large Midwestern employers. This long time period (the longest extant on a large number of employers) permits an evaluation of the supposed "golden age" of internal labor markets, as well as any recent decline. The results also shed light on several theories that attempt to explain increased pay inequality. We find no evidence of a recent decline in the importance of internal labor markets in large firms, as measured by the magnitude or persistence of deviations in company wage policies from market averages. Moreover, employers in industries that underwent deregulation or that experienced rising imports did not systematically weaken their internal labor markets.

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Bibliographic Info

Paper provided by Federal Reserve Bank of New York in its series Research Paper with number 9819.

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Date of creation: 1998
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Handle: RePEc:fip:fednrp:9819

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Keywords: Labor market ; Wages;

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References

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Citations

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Cited by:
  1. Erica L. Groshen & Mark E. Schweitzer, 1997. "Identifying inflations grease and sand effects in the labor market," Working Paper 9705, Federal Reserve Bank of Cleveland.
  2. Charness, Gary B & Levine, David I. I., 1999. "Changes In The Employment Contract? Evidence From A Quasi-Experiment," University of California at Santa Barbara, Economics Working Paper Series qt5jz354m3, Department of Economics, UC Santa Barbara.
  3. Renault, Régis & Auriol, Emmanuelle, 2008. "Status and incentives," Economics Papers from University Paris Dauphine 123456789/12479, Paris Dauphine University.
  4. Bryce Stephens, 2005. "Wage Dispersion, Compensation Policy and the Role of Firms," Longitudinal Employer-Household Dynamics Technical Papers, Center for Economic Studies, U.S. Census Bureau 2005-04, Center for Economic Studies, U.S. Census Bureau.
  5. Chris Doucouliagos & Phillip Hone & Mehmet Ulubasoglu, 2006. "Discrimination, Peformance and Career Progression in Australian Public Sector Labor Markets," Economics Series 2006_07, Deakin University, Faculty of Business and Law, School of Accounting, Economics and Finance.
  6. Auriol, Emmanuelle & Renault, Régis, 2000. "The Costs and Benefits of Symbolic Differentiation in the Work Place," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 101, Institut d'Économie Industrielle (IDEI), Toulouse, revised 2002.
  7. Lane, Julia I. & Salmon, Laurie A. & Spletzer, James R., 2007. "Establishment Wage Differentials," Working Papers, U.S. Bureau of Labor Statistics 403, U.S. Bureau of Labor Statistics.
  8. Marianne Bertrand, 1999. "From the Invisible Handshake to the Invisible Hand? How Import Competition Changes the Employment Relationship," NBER Working Papers 6900, National Bureau of Economic Research, Inc.
  9. Davis, Elizabeth E. & Freedman, Matthew & Lane, Julia & McCall, Brian P. & Nestoriak, Nicole & Park, Timothy A., 2005. "Product Market Competition and Human Resource Practices: An Analysis of the Retail Food Sector," Working Papers, University of Minnesota, The Food Industry Center 14349, University of Minnesota, The Food Industry Center.
  10. O'shaughnessy, Kevin C. & Levine, David I. & Cappelli, Peter, 1998. "Changes in Managerial Pay Structures 1986-1992 and Rising Returns to Skill," Institute for Research on Labor and Employment, Working Paper Series, Institute of Industrial Relations, UC Berkeley qt3cm3820b, Institute of Industrial Relations, UC Berkeley.
  11. Julie L. Hotchkiss & M. Melinda Pitts & John C. Robertson, 2004. "Wage gains among job changers across the business cycle:> insight from state administrative data," Working Paper, Federal Reserve Bank of Atlanta 2004-19, Federal Reserve Bank of Atlanta.

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