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Competitive and Segmented Labour Markets and Exclusion from Retirement Income


  • Gerard Hughes

    (Economic and Social Research Institute (ESRI))

  • Brian Nolan

    (Economic and Social Research Institute (ESRI))


Segmented labour market theory rests on two central tenets. The first is that it is meaningful to distinguish between primary labour markets providing "good" jobs with high wages and stable employment and secondary labour markets providing "bad" jobs with low pay and unstable employment. The second is that jobs in primary labour markets are rationed, with substantial barriers to entry from secondary labour markets. The rationing hypothesis cannot be tested for Ireland with the data available, but here we test the hypothesis that wage determination differs across sectors, using data from a 1987 ESRI household survey. Two formulations of the segmented labour market model are tested, one distinguishing only primary and secondary sectors and the other distinguishing four sectors employed in recent US research by Gordon. Estimating standard earnings functions for both variants suggests that returns to education are lower in secondary markets, as predicted by segmentation theory, but contrary to the theory's predictions returns to work experience do not differ across sectors. There may be a less clear-cut divide between sectors in European countries than in the USA, partly because of the role of trade unions. The policy implications of adopting a segmented labour market perspective are markedly different from those of human capital theory on some central issues of labour market policy, so further investigation of that perspective appears warranted.

Suggested Citation

  • Gerard Hughes & Brian Nolan, 1999. "Competitive and Segmented Labour Markets and Exclusion from Retirement Income," Papers WP108, Economic and Social Research Institute (ESRI).
  • Handle: RePEc:esr:wpaper:wp108

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    References listed on IDEAS

    1. James M. Poterba & Steven F. Venti & David A. Wise, 1996. "How Retirement Saving Programs Increase Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 91-112, Fall.
    2. Teresa Ghilarducci, 1992. "Labor's Capital: The Economics and Politics of Private Pensions," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262071398, January.
    3. Schiller, Bradley R & Weiss, Randall D, 1980. "Pensions and Wages: A Test for Equalizing Differences," The Review of Economics and Statistics, MIT Press, vol. 62(4), pages 529-538, November.
    4. McNabb, Robert & Whitfield, Keith, 1998. "Testing for Segmentation: An Establishment-Level Analysis," Cambridge Journal of Economics, Oxford University Press, vol. 22(3), pages 347-365, May.
    5. Eric M. Engen & William G. Gale & John Karl Scholz, 1996. "The Illusory Effects of Saving Incentives on Saving," Journal of Economic Perspectives, American Economic Association, vol. 10(4), pages 113-138, Fall.
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    Cited by:

    1. Gerard Hughes, 1999. "Multinational Corporations and Global and International Models of Pension Provision: Evidence from Ireland," Papers WP122, Economic and Social Research Institute (ESRI).
    2. Gerard Hughes, 2001. "The Cost and Distribution of Tax Expenditure on Occupational Pensions in Ireland," Papers WP139, Economic and Social Research Institute (ESRI).
    3. Andrietti, Vincenzo, 2000. "Occupational pension coverage in the European Union. An empirical analysis," ISER Working Paper Series 2000-14, Institute for Social and Economic Research.

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