Moving from the external to an internal labour market: Job tenure, cycle and wage determination

LEANDRO AROZAMENA; MÁRIO CENTENO

Institutions and Wage Formation in the New Europe

Edward Elgar

Lugar: Cheltenham; Año: 2003; p. 69 - 97

Considerable attention has been devoted to the analysis of wage determination within firms. The main observation in the resulting literature is that wage setting in such "internal" labor markets differs substantially from the predictions that stem from regarding the labor market as competitive. As a consequence, research has focused on the reasons why these internal labor markets exist and on how they function. However, a worker that could but has not been hired by a given firm has not entered that firm´s internal labor market yet: she is taking part in a competitive, "external" labor market, one that is much more similar to the analysis in standard, competitive models. Once the worker has been hired, a process must occur whereby she moves from the external to an internal labor market. Little effort has been made in attempting to describe and explain this transition. This paper tries to fill that gap. Specifically, we analyze both theoretically and empirically the shift from the external to an internal labor market as it is reflected in changes in the wage determination process along the transition.