The Rise and Decline (?) of U.S. Internal Labor Markets

Museum & Gold Tour Data & Statistics Careers Blog Press Center

About the New York Fed
- About the New York Fed
- What We Do
- Governance
- Diversity and Inclusion
- Advisory Groups
- Events
- Vendor Information
- Working within the Federal Reserve System, the New York Fed implements monetary policy, supervises and regulates financial institutions and helps maintain the nation's payment systems.
  
  Do you have a Freedom of Information request? Learn how to submit it.
  
  See the world's largest accumulation of gold as you learn about the New York Fed and Federal Reserve System on a free tour.
  
  The latest Annual Report chronicles the impact of Federal Reserve policies and includes data on the New York Fed's operations.
Markets & Policy Implementation
Economic Research
- Economic Research
- Data & Indicators
- Publications
- People
  - Visiting Scholars
  - Resident Scholars
- Liberty Street Economics Blog
- Our economists engage in scholarly research and policy-oriented analysis on a wide range of important issues.
  
  The Center for Microeconomic Data offers analysis and data exploring individual-level financial and nonfinancial economic conditions, expectations, and behavior in the United States.
  
  Our model produces a "nowcast" of GDP growth, incorporating a wide range of macroeconomic data as it becomes available.
  
  U.S. Economy in a Snapshot is a monthly presentation designed to give you a quick and accessible look at developments in the economy.
Financial Institution Supervision
- Financial Institution Supervision
- Supervision & Regulation
  - Circulars
  - Regulations
- Reporting Forms & Instructions
  - Reporting Forms
  - Correspondence
- Bank Applications
- Consumer Protection
  - Community Reinvestment Act Exams
  - Frauds and Scams
- As part of our core mission, we supervise and regulate financial institutions in the Second District. Our primary objective is to maintain a safe and competitive U.S. and global banking system.
  
  The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
  
  Need to file a report with the New York Fed? Here are all of the forms, instructions and other information related to regulatory and statistical reporting in one spot.
  
  The New York Fed works to protect consumers as well as provides information and resources on how to avoid and report specific scams.
Financial Services & Infrastructure
- Financial Services & Infrastructure
- Financial Services & Operations
- Financial Market Infrastructure & Reform
- 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.
  
  The New York Fed provides a wide range of payment services for financial institutions and the U.S. government.
  
  The New York Fed offers several specialized courses designed for central bankers and financial supervisors.
  
  The New York Fed has been working with tri-party repo market participants to make changes to improve the resiliency of the market to financial stress.
Outreach & Education
- Outreach & Education
- Community Development
- School & University Programs
  - High School
  - College and Graduate
- Museum & Learning Center
- Events
  - Upcoming Events
  - Past Events
- The New York Fed engages with individuals, households and businesses in the Second District and maintains an active dialogue in the region. The Bank gathers and shares regional economic intelligence to inform our community and policy makers, and promotes sound financial and economic decisions through community development and education programs.
  
  The Governance & Culture Reform hub is designed to foster discussion about corporate governance and the reform of culture and behavior in the financial services industry.
  
  The College Fed Challenge is a team competition for undergraduates inspired by the working of the Federal Open Market Committee.
  
  The Community Credit interactive highlights credit conditions, including measures of credit inclusion and stress, at the national, state and county levels.

Research Papers

July 1998 Number 9819

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.

Available only in PDF PDF

52 pages / 203 kb

tools