The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
Regional & Community Outreach connects the Bank to Main Street via structured dialogues and two-way conversations on small business, mortgages, and household credit.
Economic Education improves public knowledge about the Federal Reserve System, monetary policy implementation, and promoting financial stability through the Museum and programs for K-16 students and educators, and the community.
The Rise and Decline (?) of U.S. Internal Labor Markets
JEL classification: J3, J41
Authors: Erica Groshen and David Levine
Many employers adopt practices that insulate their workforces from the outside labor market. One defining characteristic of such an "internal labor market" is a company wage policy that diverges from that of the external market. These divergences may occur for an entire employer on average, or for a subset of occupations at an employer. This paper examines the changing magnitude and persistence of both types of divergence over the last 40 years. We analyze a unique salary survey with detailed microdata on the pay practices of 228 large Midwestern employers. This long time period (the longest extant on a large number of employers) permits an evaluation of the supposed "golden age" of internal labor markets, as well as any recent decline. The results also shed light on several theories that attempt to explain increased pay inequality.
We find no evidence of a recent decline in the importance of internal labor markets in large firms, as measured by the magnitude or persistence of deviations in company wage policies from market averages. Moreover, employers in industries that underwent deregulation or that experienced rising imports did not systematically weaken their internal labor markets.