In Search of a Good Job: Mobility in a Dual Labor Market

Abstract

Dual labor market theory developed in the late 1960 's as economists tried to explain how and why labor market outcomes deviated from neoclassical expectations. The theory held that the labor market was divided into a primary sector ("good" jobs characterized by high pay, security, good benefits and ample opportunities for promotion) and a secondary sector ("bad" jobs characterized by low pay, insecurity, and few chances for advancement). Moreover, dualists argued that there was a scarcity of primary sector jobs and, therefore, limited or no mobility between sectors. Internal labor markets, statistical discrimination, and efficiency wages were each blamed, in turn, for creating the dual labor market. By 1990, dual labor market theorists recognized a significant amount of inter-sectoral mobility, begging the question, "How do people move from bad jobs to good jobs?" Using survey responses obtained from two cohorts of recent male high school graduates who entered the labor force instead of attending four-year colleges, the use of social linkages (friends and family already employed in the primary sector) was found to be a statistically significant aid in realizing mobility. Given this finding, a two-tiered program of job placement assistance (aimed (1) at high school students and (2) at high school graduates who have several years of labor market experience) and a system of incentives for firms to create "good" jobs are advocated as ways to reduce labor market segmentation.