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The Economics of Internal Labor Markets
Author(s) -
WACHTER MICHAEL L.,
WRIGHT RANDALL D.
Publication year - 1990
Publication title -
industrial relations: a journal of economy and society
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.61
H-Index - 57
eISSN - 1468-232X
pISSN - 0019-8676
DOI - 10.1111/j.1468-232x.1990.tb00753.x
Subject(s) - enforcement , transaction cost , order (exchange) , implicit contract theory , economics , microeconomics , personnel economics , database transaction , industrial organization , information asymmetry , information economics , business , labour economics , labor relations , finance , law , computer science , political science , programming language
Our essay focuses on the economics of long‐term contractual relationships between a firm and its employees, referred to as the internal labor market. We review the economics literature on match‐specific investments, risk aversion, asymmetric information, and transaction costs. We argue that an integrated treatment of all four factors is needed in order to apply implicit contract theoy to internal labor markets. Integrating the topics also highlights the tradeoffs created among these factors. Our discussion stresses contract enforcement mechanisms, including self‐enforcing contracts and third‐party enforcement.