Scandinavian Working Papers in Economics

Working Papers,
University of Aarhus, Aarhus School of Business, Department of Economics

No 04-19: The Prevalence of Internal Labour Markets - New Evidence from Panel Data

Tor Eriksson () and Axel Werwatz
Additional contact information
Tor Eriksson: Department of Economics, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Axel Werwatz: Humboldt University, Berlin, Postal: Humboldt University, Berlin

Abstract: In recent years, a small but growing literature concerned with the empirical analysis of the workings of internal labour markets has emerged. These studies, which have almost exclusively been based on personnel records data from single firms, notably Lazear (1992) and Baker, Gibbs and Holmström (1994), have begun to provide some empirical evidence on many of the issues raised by the primarily theoretical field of personnel economics.

Instead of one further single firm study, this paper uses an employer-employee linked data set based on 222 Danish private sector, medium-sized or large firms during the period 1980 to 1995. The principal aim of the study is to look for evidence of internal labour markets by focussing on whether there are stable careers, whether being an incumbent has advantages for one’s subsequent career, and on to what extent and how wages are set within the firm. We also examine the influence of the external labour market on wage setting within firms.

The data set allows us to examine whether firms differ, and if so, if there are industry-specific differences or differences between growing, stable, and declining firms. Moreover, our study provides insights different from those of earlier work by comparing the internal labour markets of managerial employees with those of the much less studied non-managerial workers

Keywords: Internal labour markets; Careers; Promotions; Firms’ wage structures

JEL-codes: J31; J40; J41

36 pages, September 2, 2005

Note: Published in: International Journal of Economics Research, 2005 (2), 1-20

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