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What is the difference between an internal and an external l

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Trang Tran

on 15 September 2013

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Transcript of What is the difference between an internal and an external l

What is the difference between an internal and an external labour market? What are the basic features of an internal labour market? What are the implications of this for wage levels and employment?
External Labour Market
The external labour market is an auction market
Workers are competing for jobs and firms bid to attract and retain labour
Supply and demand play a role in determining the wage rate paid for the port-of-entry position
This is where the external labour market gains a position in the internal market
Employers find it hard to hire employees based on interviews, tests and other employer recommendations
Internal Labour Market
Created so workers are hired in relatively low level jobs and higher-level jobs are filled only from within the firm
Allows the firm to observe workers on the job
Used to fill vacancies in the firm
The person presently occupying any job has rights over those who do not occupy the job
Wages are determined by administrative rules and procedures in creating the job ladder
Basic features of the Internal Labour Market
Job hierarchy
Administrative rules and procedures
Job Hierarchy
Entails a sequence of jobs that forms a job ladder
A job ladder is the mechanism by which the desired workforce stability is achieved
Provide an incentive for its existing workforce to be disciplined, productive and continuously motivated to seek new skills
The position at which workers gain access to the job ladder is called, a port of entry
Advantages to employers:
Reduction of employee turnover
Reduces employee training
reduce recruitment and testing costs
Advantages to workers:
Workers stay to ascend in the job ladder
Shielded from the competition of the external labour market
Administrative Rules and Procedures
The pricing and allocation of the labour are determined by administrative rules and procedures
The worker who has been on a particular rung of a job ladder for the longest time will be promoted to the next rung when an opening occurs
Job evaluation is a procedure where jobs are ranked and wage rates are assigned to the job characteristic and worker traits
Implications for wage levels
Implications for employment
Wages are tied to job rather than workers
Wages in internal labour markets are determined by administrative procedures embodied in job evaluation, customs and/or tradition
A system of job evaluation is used to establish the wage rate attached to each job in a job ladder
The wage must be high enough relative to the jobs in which it is supposed to draw its labour and low enough relative to the jobs to which it is supposed to supply labour to induce the desired pattern of internal mobility
Decreases labour turnover, reduces the costs of training, recruitment, screening and hiring
The job ladders of internal labour markets give the employer abundant information about the quality of its workers
The firm is less likely to promote a non-productive worker
We can estimate that labour turnover to be low when people to stay with their employers for relatively long periods
ABS CAT. NO. 6209.0 Labour Mobility February 2013 p. 6
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