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University of Nebraska - Lincoln

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Economics Department Faculty Publications Economics Department

5-1-1973

Dual Labor Markets: A Teory of Labor MarketSegmentation

Michael ReichBoston University

David M. GordonHarvard University

Richard C. EdwardsHarvard University

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Reich, Michael; Gordon, David M.; and Edwards, Richard C., "Dual Labor Markets: A Teory of Labor Market Segmentation" (1973).Economics Department Faculty Publications. Paper 3.hp://digitalcommons.unl.edu/econfacpub/3

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DUAL LABOR MARKETS1 A Theory of Labor Market Segmentation

A growing body of em pirical researchhas documented persistent divisionsamong American workers: divisions byrace, sex, edu cational credentials, indu strygrouping, and so forth (F. B. Weisskoff,B. Bluestone, S. Bowles and H. Gintis,D. Gord on, 1971 an d 1972, B. H arrison,M . Reich, H. Wachtel and C. Betsey,and H. Zellner). These groups seem tooperate in different labor markets, withdifferent working conditions, differentpromotional opportunities, differentwages, and different ma rke t insti tution s.These continuing labor ma rke t divisionspose an omalies for neoclassical econom ists.Orthodox theory assumes that profit-maximizing employers evaluate workersin term s of their individual chara cteristicsand p redicts th at labor ma rket differencesamong groups will decline over time be-cause of com petitive mechanisms (K .Arrow). But by most measures, the labormarket differences among groups havenot been disappearing (R. Edwards, M.Reich, and T. Weisskopf, chs. 5, 7, 8).T h e continuing importance of groups inthe labor market thus is nei ther ex-plained nor predicted by orthodox theory.Why is the labor force in general sti l l

~ so fragmented? Why are group charac-teristics repeatedly so important in theI labor market? In this paper, we sum-

marize a n emerging radical theor y of lab ormarket segm entat ion; we develop thefull arguments in Reich, Gordon, andEdw ards. Th e theory argues tha t pol i ticaland economic forces within Americancapitalism have given rise to and per-petuated segmented labor markets , andthat i t is incorrect to view the sources ofsegmented markets as exogenous to theeconomic system.

Present Labor Market SegmentationWe define labor market segmentationas th e historical process whereby political-economic forces encourage the division ofthe labor market into separate subm arkets ,or segments, distinguished by differentlabor market characteristics and be-havioral rules. Segmented labor marketsar e thu s the outcome of a segm entationprocess. Segments may cut horizontallyacross the occupational hierarchy as wellas vert ical ly. We suggest that presentlabor mar ke t conditions can m ost usefullybe understood as the o utcome of fo ur seg-

me ntation processes.1. Segmentation into Primaryan d Secondary Markets

The primary and secondary segments,to use the terminology of du al labormarket theory, are differentiated mainlyby stabili ty characteristics. Primary jobs* Assistan t Professor of economics, Boston Univer- require and d evelop stable working habits ;sity, and Research Associates, Center for Educational

1 Policy Research, Harvard University, respectively. This skills are o ften acquired on th e job ; wagesresearch was supported by a grant from the Manpower are relatively high; and job ladders exist .Adm inistration, U .S. Depar tmen t of Labo r. Nee dless tosay , we alon e are responsible for the views expressed in Secondary jobs do not require and oftenthis paper. discourage stable working habits; wages

American Economic Review 63:2 (May 1973), pp. 359-365.Copyright 1973 American Economic Association. Used by permission.

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are low; turnover is high; and job laddersare few. Secondary jobs are mainly(though not exclusively) filled by minorityworkers, women, and youth.

2. Segmentation Within thePrimary Sector

Within the primary sector we see a seg-mentation between what we call "sub-ordinate" and "independent" prim aryjobs. Subordinate primary jobs are rou-tinized and encourage personality char-acteristics of dependability, discipline,responsiveness to rules and auth ority , andacceptan ce of a firm's goals. Bo th fact oryan d office jobs a re prese nt in th is segment.I n contrast, independent primary jobs en-courage and require creative, problem-solving, self-initiating characteristics andof en have professional stan dar ds forwork. Voluntary turnover is high and in-dividual motivation and achievement arehighly rewarded.

3. Segmentation by RaceWhile minority workers are present insecondary, subor dinate primary and in-dependent primary segments they oftenface distinct segments within those sub-markets. Certain jobs are "race-typed,"segregated by prejudice and by labormarket institutions. Geographic separa-tion plays an important role in maintain-

ing divisions between race segments.4. Segmentation by Sex

Certain jobs have generally been re-stricted to men; others to women. Wagesin the female segment are usually lowertha n in comp arable male jobs; female jobsoften require and encourage a "servingmentalityv-an orientation toward pro-viding services to other people and par-ticularly to m en. These characteristics areencouraged by family and schooling in-stitutions.

The Historical Origins of LaborMarket SegmentationT he presen t divisions of the labormarket are best understood from an his-toric al analysis of their origins. We argu eth at segm entation arose during the transi-tion from competitive to monopoly cap-italism. Our historical analysis focuses onthe era of m onopoly capitalism, fro mroughly 1890 to th e present, w ith specialemphasis on the earlier transitional years.Du ring t he preceding period of com -petitive capitalism, labor ma rke t develop-

ments pointed toward the progressivehomogenizatiorc of th e labo r force, n o ttoward segmentation. The factory systemeliminated man y skilled c raft occupations,cre atin g large poo ls of semiskilled jobs(N. W are). Production for a mass marke tand increased mechanization forged stan-dardized work requirements. Large es-tablishments drew greater numbers ofworkers into common working environ-ments.T he increasingly homogeneous a nd pro-letar ian char acte r of th e work force gen-erated tensions which were manifest inthe tremendous upsurge in labor conflictth at accompanied th e emergence of m o-nopoly capitalism: in railroads datingback to 1877, in steel before 1901 an dagain in 1919, in coal mining during andafter the F irst W orld W ar, in textile millsthroughout this period, and in countlessother plants and industries around thecountry. The success of the IndustrialW ork ers of th e W orld ( IWW), he emer- Igence of a strong Socialist party, the Igeneral (as opposed to industry-specific) 1strikes in Seattle and New Orleans, themass labor revolts in 1919 and 1920, a ndthe increasingly nationa l charac ter of t helabor movement throughout this periodindicated a widespread and growing op-position to capitalist hegem ony in general.More and more, strikes begun "simply"over wage issues often escalated to much

~

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VOL. 63 N O . 2 DUAL LABOR MARKETS 36 1

from conscious strategies and systemicforces.

I

Conscious Ejor ts

more general issues (J. Brecher, J.Commons).At the same t ime that the work forcewas becoming more homogeneous, thoseoligopolistic corporations that still dom-inate th e economy today began to emergeand to consolidate their power. The cap-tains of the new monopoly capitalist era,now released from short-run competitivepressures and in search of long-run stabil-ity, turned to the captu re of strategiccontrol over product and factor markets .Their new concerns were th e creation andexploitation of monopolistic control, rath erth an th e allocational calculus of sho rt-runprofit-maximization. (For examples seeA. Chandler, B. Emmet and J . Jeuck, R.Hidy a nd M . Hidy, and A. Nevins.)The new needs of monopoly capitalismfor control were threatened by the con-sequences of homogenization a nd pro -letarianiza tion of th e work force. Ev iden ceabounds that large corporations werepain fully aware of th e potentially revolu-tiona ry char acte r of the se mo vem ents. AsCommons notes, the employers' "massoffensive'' on unions between 1903 and1908 was m ore of a n ideological crusadeth an a m at te r of specific dem ands. T hesimultane ous formation of th e Na tiona lCivic Federation (NCF) , a group dom-ina ted by large "progressive" capitalists,was anoth er explicit manifestation of thefundamental crises facing the capitalistclass (J. Weinstein). The historical anal-ysis which follows suggests that to meetthis threat employers actively and con-sciously fostered labor market segmenta-

Monopoly capitalist corporations de-vised deliberate strategies to resolve thecontradictions between the increased pro-letarianization of the work force an d th egrow th and consolidation of conce ntratedcorporate power. The central thrust ofthe new strategies was to break down theincreasingly unified worker interests thatgrew ou t of t he proletarianiza tion of workan d th e concentration of w orkers in urba nareas. As exhibited in several aspects ofthese large firms' operations, this effortaimed to divide the labor force into varioussegments so th a t t he actu al experiences ofworkers were different and the basis oftheir common opposition to capitalistsundermined.Th e first element in the new strateg y in-volved th e int ern al relations of th e firm.The tremendous growth in the size ofmonopoly capitalist work forces, alongwith t h e dem ise of craft-gov erned pro -duction, necessitated a change in theauth ority relations upon which control inthe firm rested (R. Edwards). Effortstoward change in this area includedTaylorism and Scientific Ma nagem ent, th eestablishment of personnel departments,experimentation with different organiza-tional struct ures, th e use of in dustr ialpsychologists, "human relations experts"

l tion in order to "divide and conquer"the labor force. Moreover, the efforts ofmonopolistic corporations to gain greatercontrol of their produ ct m ark ets led to adichotom ization of th e indu strial struc-ture which had the indirect and unin-

We have paid m ore atten tion in this brief summ aryto employers' conscious efforts because the o ther pape rspresented in this session provide a complementary em-phasis on systemic forces. We fully develop both ex-planations in Reich, Gordon, and E dwards.Th ese efforts were "conscious" in th e followingsense. Capitalists faced immediate problems and eventsand devised strategies to meet them. Successful strate-gies survived and were copied. These efforts were not"conscious" in the sense that those who undertook themtended, though not undesired, effect of understood fully the historical forces acting upon themor all the ram ifications of their policies. As we argu e inreinforcing their conscious strategies. Thus the text, in certain cases capitalists acted out of alabor market segmentation arose both broader class consciousness.

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36 2 AMERICAN ECONOMIC ASSOCIATION MAY 1973

and others to devise appropriate "mo-tivating" incentives, and so forth (L .Baritz, A. Chandler, S. Marglin and F.Miller and M. Coghill). From this efforteme rged th e intensification of hierarc hicalcontrol, particularly the "bureaucraticform" of modern corporations. In thesteel industry, for example, a whole newsyste m of str atified jobs was intro duc edsho rtly after the form ation of U.S. Steel(K . Sto ne). Th e effect of bu reau cratiz a-tion was to establish a rigidly gradedhiera rch y of jobs an d power by which"top-down" au tho rity could be exercised.T he restructuring of th e inter nal rela-tions of the firm furth ered labor ma rk etsegm entation throug h th e creation of seg-mented "internal labor markets." Jobladders were created, w ith definite "entry-level" jobs and patterns of promotion.White-collar workers entered the firm'swork force and were promoted within it indifferent ways from the blue-collar pro-duction force. Workers not having thequalifications for particular entry-leveljobs were excluded from access to th a t en-tire job ladder. In response, unions oftensought to gain freedom from th e arbitr arydiscretionary power of supervisors by de-manding a seniority criterion for promo-tion. I n such cases, the union essentiallytook over the managem ent of the intern allabor markets: they agreed to allocateworkers and discipline recalcitrants, help-ing legitimize the internal market in re-tu rn f or a degree of control over its opera-tion (P. Doeringer and M . Piore).One such effort a t internal controleventually resulted in segmentation byindustry. Firms had ini tially at tempted toraise th e cost to w orkers of lea ving in-dividual companies ( b ut not the cost ofentering) by restricting certain benefitsto continued employment in that com-pan y. P a r t of th is strate gy was "welfarecapitalism" which emerged from th e NC Fin particular, and achieved most pro-

nounced form in the advanced industries.At Ford, for example, education for theworkers' children, credit, and other bene-fits were dependent on the workers' con-tinued employm ent by th e firm and there-fore tied the worker more securely to thefirm . Fo r these w orkers, th e loss of on e'sjob meant a complete disruption in allasp ects of th e family's life. Likewise,seniority benefits were lost when workersswitched companies (Weinstein). As in-dustrial unions gained power, they trans-formed some of thes e firm-specific benefitsto industry-wide privileges. The net effectwas an intensification no t only of inter nalsegm entation, bu t also of seg me ntation byindustry, which, as we discuss in th e nextsection, had other origins as well.At the same t ime that fi rms were seg-menting their intern al labor mark ets, sim-ilar efforts were under way with respectto th e firm's externa l relations. Emp loyersquite consciously exploited race, ethnic,and sex antagonisms in order to undercutunionism and break strikes. In numerousinstances during the consolidation ofmonopoly capitalism, employers manipu-lated t he mechanisms of lab or supply inorder to import blacks as strikebreakers,and racial hostili ty was stirred up to de-flect class conflicts into race conflicts. Forexample, during th e steel strik e of 1919,one of the critical points in U.S. history,some 30,000 to 40,000 blacks were im-ported a s strikebreakers in a m att er of afew weeks. Employers also often trans-form ed jobs into "female jobs" in order torender those jobs less susceptible tounionization (Brecher, D . Brody, Com-mons).Em ployers also consciously manipu latedethnic antagonisms to achieve segmenta-tion. Emp loyers ofte n hired g roups fromrival nationalities in the same plant or indifferen t plants. D uring labor unrest t hecompanies se nt spies an d rum or mongersto each camp, stirring up fears, hatred,

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an d antagon isms of o ther groups. T he emergence of a mon opolistic core in th estrategy was most successful when many economy sharply accentuated some sys-immigrant groups had lit t le command of temic market forces that stimulated andEnglish (Brecher, Brody) . reinforced segm entation. As different firmsT h e ma nipulation of ethnic differences an d industries grew a t different rates, awas, however, subject to two grave limita- dichotom ization of ind ustria l stru ctur e de-tions as a tool in th e strate gy of "divide veloped (R . Ave ritt , T. Vietorisz and B.and conquer." First, increasing English Harrison, and J. OIConnor). The larger,li teracy among immigrants allowed them mo re capi tal-in tensive firm s were generallyto communicate more directly with each sheltered by barriers to entry, enjoyedothe r; second, mass imm igration ended in technological, m ark et power, an d financial1924. Corporations then looked to other economies of scale an d gene rated h ighersegm entations of more lasting significance. rate s of profit a nd grow th tha n their

Em ployers also tried to weaken th e smaller, labor-intensive com petitive coun-union movem ent by favoring the conserva- terparts. How ever, i t did n ot tur n ou ttive "business-oriented" craf t unions th a t the monopolistic core firms wereaga inst the newer "social-oriented" in- wholly to swallow up the com petitivedu str ial unions. An ideology of co rp ora te periphery firms.liberalism toward labor was articulated Given their large capital investments,aroun d the turn of the centu ry in the the large monopolistic corporations re-NCF. Cor porate liberalism recognized quired stable m ark et demand and stableth e pote ntial gains of legitimizing some planning horizons in order to insure th a tunions but not others; the N CF worked their inve stm ents would no t go unutilizedjointly with the craft-dominated American (J. K . Galbraith). Where demand wasFede ration of L abo r to underm ine the cyclical, seasonal, or otherwise unstable,more militant industrial unions, the So- production within the m onopolistic en-cialist party , an d th e I W W (Weinstein). vironm ent became increasingly unsuit-As th e period progressed, em ployers able. M ore an d more, produ ction of cer-also turn ed to a relatively new divisive tain pro duc ts was subco ntracted or "ex-means, the use of educational "creden- ported" to small, mo re com petitive an dtials." F or the first tim e, ed ucational less capital-intensive firms on the indus-credentials were used t o regularize skill re- trial periphe ry.quirem ents fo r jobs. Em ployers played an Along with the dualism in the indus-activ e role in molding education al institu - trial struc ture , there developed a corre-tions to serve these channeling fun ction s. sponding dualism of working environ -T he new requirements helped m aintain ments, wages, and mobility pa ttern s.the so me wha t artificial distinctions be- Mon opoly corpora tions, with more stab letween factory workers and those in production and sales, developed job struc-1 routinized office jobs and helped generate ture s and internal relations reflecting th a t, some stron g divisions within th e office be- stability. For example, th e bureaucratiza-tween semiskilled white-co llar work ers tion of work rewa rded an d elicited sta blean d their mo re highly skilled office m ates work hab its in employees. I n peripheral(Bowles, Bowles an d Gintis, Cohen an d firms, where product demand was un-Lazerson and Edw ards). stable, jobs and workers tended to be

m arked also by instability. T he result wasSystemic Forces the dichotom ization of the urban laborThe rise of giant corporations and the ma rket into "primary" and "secondary"

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364 A M E q I C A N E C O N O M I C A S S O C I A T I O N MAY 1973sectors , as the dual labor market theoryhas proposed (Gordon, 1972, Piore).I n addit ion, certain systemic forces in-tensified segmentation within corpora-t ions in the primary sector . As Piore hasargu ed, th e evolution of technology w ithinprimary work places tended to promotedistinctions between jobs requiring gen-eral and specific skills. As new tech-nologies emerged which replicated thesedifferential skill requirements, employersfound that they could most easily trainfor particular jobs those workers who hadalready developed those different kindsof skills. As highly technical jobs evolvedin which the application of generalized,problem-solving techniques were required,for instance, employers found that theycould ge t the mo st ou t of those who hadalready developed those traits. Initialdifferences in productive capacities wereinevitably reinforced.

T he Social Functions ofLabor Market SegmentationAs th e preceding historical analysis hasargued, labor market segmentation isintimately related to the dynamics ofmonopoly capital ism. Understanding i tsorigins, we are now in a position to assessits social impo rtance.Labor market segmentat ion arose andis perpetuated because i t is funct ional-that is , i t facil i tates the operation ofcapitalist institutions. Segmentation isfunctional primarily because i t helps re-produce capital is t hegemony. Fir s t , as thehistorical analysis makes quite clear,segmentation divides workers and fore-s tal ls potential movements unit ing allworkers against employers . (For an in-teresting analysis, see C. Ker r and A .Siegel) . Second, segmentation establishes"fire trails" acro ss vertic al job ladd ers

and, to the extent that workers perceiveseparate segments with different criteriafor access, workers limit their own as-

pirat ions for mobil i ty. Less pressure isthen placed on other social institutions-the schools an d th e fam ily, for example-that reproduce the class s tructure. Third,division of workers in to segm ents legi-t imizes inequali ties in a utho rity an d con-trol between superiors and subordinates.For example, institutional sexism andracism reinforce the industrial authorityof white male foremen.Pol i t ical Impl icat ions

On e of the principal barriers to un itedanticapital is t opposit ion among workersha s been the evolution and pers istence oflabor market segmentation. This seg-mentation underlies the current s tate ofvariegation in class consciousness amongdifferent groups of workers. A bette r un -dersta ndin g of th e endogenous sources ofuneven levels of consciousness helps toexplain the difficulties involved in over-coming divisions among workers. None-theless, if we more clearly unde rsta nd th esources of our divisions, we ma y be ab leto see more clearly how to overcome th em .REFERENCES IK. Arrow, "Some Models of Racial Discrimi-nation in the Labor Force," in A. Pascal, ed.,T he American Economy in Black and Whi t e ,Santa Monica 1971.

R. Averitt, Th e Dua l Economy, New York1967.L. Baritz, Ser van ts of Power , Middletown,Conn. 1964.B. Bluestone, "Institutional and Industrial De-term inants of Wage Differentials," mimeo,Boston College 1971.S. Bowles, "Understanding Unequal EconomicOpportunity," Amer. Eco n. Rev ., Proc., May1973. and H. Gintis, "IQ in the U.S. SocialStructure," Social Policy, Jan.-Feb. 1973.J. Brecher, Strike!, San Francisco 1972.D. Brody, Steelworkers: T h e Non-Union Era,New York 1965.

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A. Chandler, Strategy and Structure, NewYork 1966.D. Cohen and M. Lazerson, "Education and

the Industrial Order," Socialist Revolutio~i,Mar.-Apr. 1972.J. Commons, History of Labor in the UnitedStates, New York 1935.P. Doeringer and M. Piore, Internal LaborMarkets and Manpower Analysis, Lexing-ton, Mass. 1972.R. Edwards, "Alienation an d Inequality: Capi-talist Relations of Production in Bureau-cratic Enterprises," unpublished Ph.D. dis-sertation, Harvard Univ. 1972.M. Reich and T. Weisskopf, TheCapitalist System, Englewood Cliffs 1972.B. Emrnet and J. Jeuck, Catalogues and C ount-ers, Chicago 1950.J. K. Galbraith, The New Industrial State,Boston 1967.D. Gordon, "Class, Productivity, and theGhetto : A Stu dy of Labor M arket Stratifica-tion," unpublished Ph.D. dissertation, Har-vard Univ. 1971., Theories of Poverty and Underem-

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Sources of Personnel Work, Ithaca 1961.A. Nevins, Ford: The Times, The Ma n, TheCompany, New York 1954.J. O'Connor, "Inflation, Fiscal Crisis, and theAmerican Working Class," Socialist Revolu-tion, Mar.-Apr. 1972.M. P iore, "Notes for Theory of Labor M arketStratification," Working Paper No. 95,Dept. of Econ., Mass. Instit. of Tech. Oct.1972.M. Reich, "The Economics of Racism," inD . Gordon, ed., Problems in P olitical Econ-omy, Lexington, Mass. 1971 ., D. Gordon and R. Edwards, "Labor

Market Segmentation in American Capital-ism," forthcoming 1973.K. Stone, "Labor Management and the Originof Job Structures in the Steel Industry,"mimeo, Ha rvar d Univ. 1973.T. Vietorisz and B. Harrison, "Labor MarketSegmentation: Positive Feedback and Di-vergent Development," Amer. Econ. Rev.,Proc., May 1973.H. W acht el a nd C. Betsey, "Low Wage Work-ers and the Dual Labor Market," mimeo,

American Univ., Apr. 1972.N . W are, The Indus trial Worker, 1840-1860,Chicago 1964.J. Weinstein, The Corporate Ideal in the Lib-eral State, Boston 1967.F. B. W eissk off, "Women's Place in the LaborMarket," Amer. Econ. Rev., Proc., May1972, 62, 161-166.H. Zellner, "Discrimination Against Women,Occupational Segregation, and the RelativeWage," Amer. Econ. Rev., Proc., May 1972.