Do internal labour markets survive in the New Economy? The Case of France

Following the adoption of information and communication technologies (ICT), firms may react to increasing skill requirements either by training or hiring the new skills, or a combination of the two. Using matched datasets with about 1,000 French plants, we assess the relative importance of these external and internal labour market strategies. We show that skill upgrading following technological and organisational changes takes place mostly through internal labour markets adjustments. Consistently with the results in the literature, we find that the intensive use of ICT is associated with an upward shift in the occupational structure within firms. We show that about one third of the upgrading of the occupational structure is due to hiring and firing workers from and to the external labour market, whereas two-thirds are due to promotions. Moreover, we find no compelling evidence of external labour market strategies based on "excess turnover". In contrast, French firms heavily rely on training in order to upgrade the skill level of their workforce. When looking at potential heterogeneity across firms in skill upgrading strategies, we find that all firms rely much more on promotions than on external movements in order to shift their occupational structure upward. In contrast, different training patterns are found across sectors: the use of ICT is strongly correlated with training for all occupational groups in manufacturing sectors, whereas this is not the case in services. This difference is robust to controlling for other sources of heterogeneity and may be explained by the fact that labour turnover is much higher in services than in manufacturing.