Do internal labour markets protect the unskilled from low payment? Evidence from Germany

Purpose - – Up to date, it remains an unresolved issue how firms shape inequality in interaction with mechanisms of stratification at the individual and occupational-level. Accordingly, the authors ask whether workers of different occupational classes are affected to different degrees by between-firm wage inequality. In light of the recent rise of overall wage inequality, answers to this question can contribute to a better understanding of the role firms play in this development. The authors argue and empirically test that whether workers are able to benefit from firms’ internal or external strategies for flexibility depends on resources available at the individual and occupational level. The paper aims to discuss these issues. Design/methodology/approach - – Matched employer-employee data from official German labour market statistics are used to estimate firm-specific wage components, which are then regressed on structural characteristics of firms. Findings - – Between-firm wage effects of internal labour markets are largest among unskilled workers and strongly pronounced among qualified manual workers. Effects are clearly smaller among classes of qualified and high-qualified non-manual workers but have risen sharply for the latter class from 2005 to 2010. Social implications - – The most disadvantaged workers in the labour market are also most contingent upon employers’ increasingly heterogeneous policies of recruitment and remuneration. Originality/value - – This paper combines insights from sociological and economic labour market research in order to formulate and test the new hypothesis that between-firm wage effects of internal labour markets are larger for unskilled than for qualified workers.