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Internal Labor Market Theory

📈 Economics By CampusDown Wiki Editorial Team Last updated
Quick answer: an internal labor market is a firm-level system in which pay and promotion follow internal rules and job ladders instead of market prices. Outside hiring happens mainly at entry-level ports of entry.
Contents
  1. 1. Concept
  2. 2. Causes
  3. 3. Pros and cons
  4. 4. References

Concept

In Internal Labor Markets and Manpower Analysis (1971), Doeringer and Piore described labor markets inside large firms where the pricing and allocation of labor are governed by administrative rules. Outsiders enter through low-level ports of entry, and higher jobs are filled by internal promotion.

Causes

  • Firm-specific skills make long-term employment worthwhile.
  • On-the-job training requires security so senior workers will teach juniors.
  • Custom turns seniority and internal norms into rules.

Pros and cons

Workers gain security and career prospects; firms cut turnover costs and build skills. Downsides include wage rigidity, difficulty bringing in outside talent and gaps between insiders and peripheral workers, which led to dual labor market theory.

References

  1. Doeringer, P. B., & Piore, M. J. (1971). Internal Labor Markets and Manpower Analysis. D.C. Heath.
  2. Williamson, O. E., Wachter, M. L., & Harris, J. E. (1975). Understanding the employment relation: The analysis of idiosyncratic exchange. Bell Journal of Economics, 6(1), 250-278.
  3. Ehrenberg, R. G., & Smith, R. S. (2018). Modern Labor Economics (13th ed.). Routledge.

Reports and materials that use this theory (Korean)

There are no materials dedicated to this theory yet, but you can search related reports in the CampusDown library (Korean).

Find more reports · Search '내부노동시장 이론' on CampusDown →
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This article was last updated on October 15, 2026. It is based on widely recognized original works and textbooks; when citing it in a paper, please check the original sources listed in the references.