Dual Labor Markets: A Theory of Labor Market Segmentation

Abstract

A growing body of empirical research has documented persistent divisions among American workers: divisions by race, sex, educational credentials, industry grouping, and so forth (F. B. Weisskoff, B. Bluestone, S. Bowles and H. Gintis, D. Gordon, 1971 and 1972, B. Harrison, M. Reich, H. Wachtel and C. Betsey, and H. Zellner). These groups seem to operate in different labor markets, with different working conditions, different promotional opportunities, different wages, and different market institutions. These continuing labor market divisions pose anomalies for neoclassical economists. Orthodox theory assumes that profit-maximizing employers evaluate workers in terms of their individual characteristics and predicts that labor market differences among groups will decline over time because of competitive mechanisms (K. Arrow). But by most measures, the labor market differences among groups have not been disappearing (R. Edwards, M. Reich, and T. Weisskopf, chs. 5, 7, 8). The continuing importance of groups in the labor market thus is neither explained nor predicted by orthodox theory. Why is the labor force in general still so fragmented? Why are group characteristics repeatedly so important in the I labor market? In this paper, we summarize an emerging radical theory of labor market segmentation; we develop the full arguments in Reich, Gordon, and Edwards. The theory argues that political and economic forces within American capitalism have given rise to and perpetuated segmented labor markets, and that it is incorrect to view the sources of segmented markets as exogenous to the economic system.