Assessing the Decline of Internal Labor Markets

The circumstances that helped create formal arrangements for managing employees in large firms, often referred to as internal labor markets, are changing. Internalized employment arrangements that buffer jobs from market pressures are giving way to arrangements that rely much more heavily on outside market forces to manage employees. This argument goes beyond previous assertions that jobs are being transformed away from permanent employees in the United States (Pfeffer and Baron 1988; Abraham 1990) in that it suggests a breakdown across many aspects of internal labor markets, even for permanent employees. Nor do these more market-mediated arrangements correspond to the “core-periphery” model, which is thought to enhance protection from the market for at least some employees. What they might entail for employees, employers, and society is considered here along with evidence of the change.