Types of Labor Market

The market that deals with the demand and supply of labor is known as the Labor Market (also known as the job market). In the labor market, employer and worker/employee connect on a common ground, which is wages or salary paid by the employer to the worker or employee for their work. This concept can be applied at the microeconomic or macroeconomic level.

At the microeconomic level, individual organisations take part in hiring, firing, and adjusting hours worked and pay for their employees. The number of hours workers put in and the intersection between supply and demand determines their pay in terms of earnings, salary, and perks. At the macroeconomic level, many factors can influence the supply and demand of labor such as dynamics of the local and international markets, immigration, population age, and level of education.

Geeky Takeaways:

• The supply and demand of labor determines the labor market, in which employers provide the demand and employees provide the supply.
• The labor market can be applied at the microeconomic or macroeconomic level.
• The macroeconomic factors that can influence the labor market are unemployment rates and labor productivity rates.
• The microeconomic factors influencing the labor market are Individual wages and the number of hours worked.

Types of Labor Market

The labor market can be categorized into the following forms:

1. Internal and External Labor Markets

i) Internal Labor Market

In the Internal labor market, the firm recruits the worker or employee within the organisation using transfer or promotion of the existing employee. Thus, the labor market lies within the organisation. The internal labor market reduces hiring and training costs, as the employee already works for the organisation. It motivates the existing employees to work better and get promotions. In addition, it also reduces the chances of uncertainty as the employer is aware of the employee’s productivity. In this market, wages are determined internally without any market pressure.

For example, An organisation where entry-level jobs advance to mid-level management roles and finally to executive positions, the workers are supported in developing their skills they need for development by training and development programs, and then are encouraged to apply for promotions.

Features:

• Promotes Loyalty: Internal Labor Market promotes loyalty and commitment among the employees.
• Opportunities: With this, the existing employees can capture the promotion and career development opportunities.
• Knowledge Retention: This market hires employees within the organisation which helps in retention of knowledge within the organisation.

Advantages:

• Cost-effective Method: The organisation can save their time, money and efforts in recruiting new employees from outside and promote their existing employees.
• Employee Motivation: In this case, the employee can have various opportunities for growth in the organisation, increasing their morale and performance level.
• Employee Retention: When employee gets recognised for their work and gets promoted to higher positions then employee feel satisfied and do not leave the organisation. Thus, it increases the employee retention.

Disadvantages:

• Limited Talent Pool: Under this method, the organisation completely depends upon the existing employees which can limit diversity of thinking and experience inside the organisation.
• Favoritism: If promotions are not made openly and merit-based, there is a chance of favoritism or bias.
• Lack of Skills: Some positions are unsuitable for internal recruitment, especially if the current employees lack the necessary abilities.

ii) External Labor Market

In the external labor market, the firm recruits workers or employees outside the organisation to fill the vacant position. According to the theory of external labor markets, employees shift between companies without restriction, and salaries are decided collectively, with little control over the wage policy of the firms. The company can hire outside candidates to fill positions at all levels of a company. The positions include CEOs, marketing positions, consultancy, and contractual appointments in government organisations. Many factors can affect the determination of wages such as job mobility and institutional barriers.

For example, To find experienced software developers, a tech firm that has wanted to expand its engineering team to meet project deadlines may look to external labor markets. The organisation can access a diverse pool of people with the particular skills and expertise needed for the roles by utilising job boards, recruiting agencies, and networking events.

Features:

• Specialised Skills: The employees from outside the company can have knowledge or abilities which are not available within the company. It can help the company in making better decisions.
• Reduced Bias: When compared to internal promotions, external recruitment methods can be unbiased and objective.
• Rapid Expansion: External Recruitment promotes rapid growth and expansion by appointing skilled individuals.

Advantages:

• Diverse Talent Pool: Under this method, the organisation recruits employees from external market which allows diversity of thinking and experience outside the organisation.
• Fresh Prespective: This method obtain new perspectives and ideas to the businesses by recruiting the competent employees from external environment.
• Eliminating Groupthink: The external labor market can help break groupthink and question the current situation in the company.

Disadvantages:

• Costly Method: The organisation have to incur huge costs in recruiting new employees from external market.
• Longer Orientation Period: It usually takes longer for new employees to get used to the dynamics, culture, and processes of the organisation.
• Difference in Culture: It can be difficult to determine whether new employees would fit well with the organisation’s culture.

2. Primary and Secondary Labor Markets

i) Primary Labor Market

The primary labor market refers to sectors or segments of the economy where jobs offer higher wages, better benefits, greater job security, and more opportunities for career advancement. Jobs in the primary labor market often require higher levels of education, skills, and experience. They are typically found in industries such as finance, technology, healthcare, and professional services. Workers in the primary labor market typically have access to formal employment contracts, such as full-time positions with benefits, and they may enjoy greater bargaining power and job stability.

For example, jobs like lawyer, teacher, carpenter, accountant, and plumber.

Features:

• Stability: Jobs in the primary labor market tend to be more stable and secure. They often offer long-term employment relationships with predictable working hours, benefits, and advancement opportunities.
• High Wages: Wages in the primary labor market are generally higher compared to those in the secondary labor market. This is because these jobs often require higher levels of skill, education, and experience.
• Skills and Training: Employees in the primary labor market typically possess specialized skills and education relevant to their profession or industry. They may undergo formal training and education to qualify for these positions.

Advantages:

• Better Wages: Since jobs in primary labor markets require a greater level of competence and stability, wages are usually higher compared to secondary labor markets.
• Greater Job Satisfaction: Employees in the primary labor market usually have higher job satisfaction levels than those in the secondary market due to several factors, including access to benefits, better working conditions, professional development opportunities, and stable employment.
• Prestige and Recognition: Positions in the main labor market usually come with greater social status and acknowledgment. These positions are usually connected with higher levels of education, specialised talents, and professional degrees, which ultimately lead to higher respect and social prestige.

Disadvantages:

• Rigid in Nature: The jobs in primary labor market is rigid in nature such as fixed working hours and limited flexibility for employees.
• Intense competition: This labor market offers higher wages and provides other benefits to the employees which creates competition among employees to get the job.
• Qualification: The jobs in this labor market necessitates higher qualifications or specialized skills, this may restrict access for some individuals.

ii) Secondary Labor Market

The secondary labor market consists of sectors or segments of the economy where jobs offer lower wages, fewer benefits, less job security, and limited opportunities for career advancement. Jobs in the secondary labor market often involve lower-skilled or unskilled work and are commonly found in industries such as retail, hospitality, agriculture, and manual labor. Workers in the secondary labor market may be employed on a part-time or temporary basis, with fewer benefits and less stability than those in the primary labor market.

For example, jobs like gas station attendants, construction workers, restaurant workers, private tutors, etc.

Features:

• Job Insecurity: Jobs in the secondary labor market are often characterized by instability and insecurity. They may involve temporary, part-time, or seasonal employment arrangements with fluctuating work hours and income.
• Low Wages: Wages in the secondary labor market are generally lower compared to those in the primary labor market. Jobs may be low-skilled or require minimal training, resulting in lower pay rates.
• Limited Benefits: Workers in the secondary labor market are less likely to receive comprehensive benefits such as healthcare or retirement plans. They may lack access to paid time off or other forms of employer-provided support.

Advantages:

• No Rigidity: The jobs in secondary labor market is flexible in nature such as flexible working hours and greater flexibility for employees.
• Less Competition: When compared with primary labor market, there is less competition among employees to get the job.
• Qualification: The jobs in this labor market does not necessitates higher qualifications or specialized skills, which can open access for all the individuals.

Disadvantages:

• Less Wages: Since jobs in secondary labor markets does not require a greater level of competence and stability, wages are usually less compared to primary labor markets.
• Decreased Job Satisfaction: Employees in the primary labor market usually have higher job satisfaction levels than those in the secondary market due to several factors, including access to benefits, better working conditions, professional development opportunities, and stable employment.
• No Prestige and Recognition: Positions in the secondary labor market does not come with greater social status and acknowledgment, which ultimately lead to low morale of employee.

3. National and Local Labor Markets

i) National Labor Market

The national labor market refers to the overall supply and demand for labor across an entire country. It encompasses all industries, occupations, and regions within the nation. In the national labor market, the organisation finds suitable employees on the national level.

For example, Jobs listed on national job search websites, such as Indeed or LinkedIn, are part of the national labor market.

Features:

• Large Scale: The national labor market operates on a large scale, encompassing millions of workers and thousands of businesses across various sectors.
• Diverse Industries: It includes diverse industries and occupations, ranging from manufacturing and healthcare to finance and technology.
• Government Policies: Government policies and regulations, such as labor laws and immigration policies, influence the dynamics of the national labor market.

Advantages:

• Wider Pool of Opportunities: Workers have access to a larger pool of job opportunities across different industries and regions.
• Economies of Scale: Employers can benefit from economies of scale by tapping into a larger workforce and market.
• Flexibility: National Labor Markets offer flexibility for businesses to adjust their workforce based on changing demand and economic conditions.

Disadvantages:

• Competition: Increased competition among job seekers can make it challenging for individuals to secure employment.
• Regional Disparities: Disparities in economic development and opportunities across different regions can lead to uneven distribution of jobs and resources.
• Policy Challenges: Implementing effective labor market policies at the national level can be complex due to diverse regional needs and interests.

ii) Local Labor Market

The local labor market refers to the supply and demand for labor within a specific geographical area, such as a city, town, or metropolitan region. In the local labor market, individuals seeking employment look for job opportunities offered by businesses, organizations, and institutions within the designated area, while employers recruit and hire workers to meet their staffing needs locally.

For example, Job fairs organized by local chambers of commerce, employment opportunities advertised in local newspapers, and businesses hiring workers within a specific locality.

Features:

• Geographical Boundaries: Local Labor Markets are defined by geographical boundaries, with employers and workers primarily interacting within the designated area.
• Community Networks: Local Labor Markets often rely on community networks, relationships, and referrals for recruitment and job search.
• Regional Economic Factors: Economic conditions, industry composition, and demographic trends unique to the local area influence the dynamics of the local labor market.

Advantages:

• Tailored Solutions: Local Labor Markets allow for tailored solutions to address the unique economic and social challenges of specific communities.
• Community Engagement: Local Labor Markets foster community engagement and collaboration among employers, workers, and government entities.
• Responsive to Local Needs: Local policymakers can respond more effectively to the needs and preferences of local businesses and workers.

Disadvantages:

• Limited Opportunities: The scope of job opportunities within a local labor market may be limited compared to the national market, especially in smaller or less economically vibrant areas.
• Skill Mismatch: Local Labor Markets may face challenges related to mismatches between the skills of available workers and the demands of local employers.
• Vulnerability to Economic Shocks: Local Labor Markets may be more vulnerable to economic downturns or industry-specific disruptions, leading to job losses and economic instability within the community.

4. Other Sociological Labor Markets

Sociologists study labor markets and occupations to demonstrate the various expectations held by various occupational groups as well as the societal forces that shape these expectations. Some of the other sociological labor markets include:

i) Bureaucratic Labor Market:

Since bureaucracies are expected to fill all positions at the entry-level within the organisation, the bureaucratic labor market serves as a helpful standard when comparing sociological labor markets. A bureaucracy is a rationally designed hierarchy of positions that are created without any reference from the people who hold the positions. It is protected from external labor markets since its workforce is hired at the bottom of the hierarchy and then promoted via training and experience.

For example, The bureaucratic system is applied to civil service system in a country in which government agencies work within the bureaucratic framework with standard operating procedures and hierarchy structure.

Features:

• Hierarchical Structure: Generally, bureaucratic organisations are characterised by a hierarchical structure that defines various levels of authority and responsibility.
• Stability and Job Security: When compared to other industries, jobs in the bureaucracy usually provide more stability and job security.
• Merit-Based Promotion: Promotion within an organisation generally depends on merit and seniority instead of personal relationships or favoritism.

Advantages:

• Organisational Stability: It provide stability to both the organisation and the employees which can ultimately promote continuity and reduce productivity.
• Predictability: Bureaucratic systems provide consistency in employment positions, responsibilities, and career advancement.
• Incresaes Efficiency: The completion of duties and the achievement of organisational objectives can be done faster and more effectively with standardised procedures.

Disadvantages:

• Rigid in Nature: The jobs in primary labor market is rigid in nature, such as fixed working hours and limited flexibility for employees.
• Red Tapism: With bureaucratic system, there is possibility of red tapism in the work. This means that there is slow decision-making process which hampers the efficiency.
• Minimal Innovation: Bureaucratic System point out the use of standard operating procedures which can hinder the creativity and innovation of the employees.

ii) Professional Labor Market:

The professional labor market is the one that differs from the bureaucratic labor market the most. The worth of a professional’s service is immeasurable and they are all unique, in principle. In the short term, supply is fixed and can decline by increasing demand if professional associations raise their admissions standards. Besides, the demand is unpredictable. In this market, professionals can set their prices and determine their basis because of the stable supply and changing demand.

For example, medical industry. It includes surgeons, physicians and other professional that must possess professional degree and training to work in this market.

Features:

• Better Wages: Since jobs in this market require a greater level of specialised skills, wages are usually higher compared to other labor markets.
• Stability and Job Security: When compared to other industries, jobs in this sector provide more stability and job security.
• Education and Training: Holding a higher education degree or a professional certification or license is necessary to enter the professional labor market.

Advantages:

• Prestige: A person’s reputation and social standing can be improved by entering a job that carries prestige and social status.
• Intellectual Stimulation: A lot of professional jobs need intellectually demanding work, which makes a person happy and fulfilled.
• Career Advancement: Employees can grow their careers because usually there are well-defined paths for professional development and career advancement.

Disadvantages:

• Intense Competition: This labor market has high number of job seekers which creates competition among employees to get the prestigious job.
• Work-Life Balance: Since the jobs are so demanding, many professionals find it difficult to maintain a healthy work-life balance.
• High-Stress Levels: The responsibilities of certain professional duties could result in high-stress levels.

iii) Semi-skilled Labor Market:

In this market, the supply of labor depends upon the local labor force. The demand is determined by the employer who designs the positions, trains employees, and promotes from within. This establishes the standards and protects the system being modified by the employer. However, in reality, a large number of semiskilled workers are represented by unions, so collective bargaining determines both the labor supply and salaries.

For example, Construction Industry. Semi-skilled workers in the construction industry include construction laborers, carpenters’ helpers, and painters.

Features:

• Various Industries: Semi-skilled workers are found in a wide range of industries, such as construction, manufacturing, retail, hospitality, and transportation.
• Routine Work: Semi-skilled jobs usually involve routine or repetitive work that doesn’t require a high level of expertise.
• Education and Training: Unlike professional labor market, which requires higher education degree or a professional certification or license, semi-skilled fields may require only a minimal education or vocational training.

Advantages:

• Access to Employment Options: Jobs in this market require a moderate level of ability and education that can be filled by people without a college degree or specialised training, which decreases the unemployment rate.
• Flexibility: A lot of semi-skilled jobs allow for flexible work schedules and cannot place strict deadlines on workers.
• Shorter Training Periods: Semi-skilled positions usually have shorter training periods than skilled jobs, which allows workers to enter the workforce more quickly. On the other hand, a skilled job usually requires years of school and training.

Disadvantages:

• Limited Career Promotion: When compared to skilled careers, semi-skilled positions may offer less opportunity for career promotion or higher salaries.
• Physical Demands: A lot of semi-skilled jobs, including those in construction or manufacturing, can be exhausting and dangerous for employees’ health.
• Work Insecurity: Employees in certain industries may experience job insecurity as a result of automation or outsourcing of certain semi-skilled jobs.

iv) White-Collar Labour Market:

There are certain similarities between the bureaucratic model and the market for white-collar workers. The company creates the position, frequently starts at the bottom, and promotes people within the organisation. Employees usually have some sort of relationship with their employer.

For example, Management consulting firms that offer businesses and organisations across several types of industries advising services.

Features:

• Formal in Nature: The majority of positions are formal, stable and generally provides several benefits, such as earned leave, retirement programmes, and health insurance to their employees.
• Organisational Stability: It provide stability to both the organisation and the employees which can ultimately promote continuity and reduce productivity.
• Education and Training: Holding a professional licenses, certifications, and degrees such as bachelor’s or master’s is necessary to enter the white collar labor market.

Advantages:

• Prestige: A person’s reputation and social standing can be improved by entering a job that carries prestige and social status.
• Stability and Job Security: When compared to other industries, jobs in this sector provide more stability and job security.
• Career Advancement: Employees can grow their careers because it offer chances for skill development, specialisation, and career promotion, which enables employees to advance in their professions.

Disadvantages:

• Work-Life Balance: Since the jobs are so demanding, many employees in this makret find it difficult to maintain a healthy work-life balance.
• Extensive Competition: This labor market has high number of job seekers which creates competition among employees to get the prestigious job.
• High-Stress Levels: The responsibilities of certain duties at higher positions could result in high-stress levels.

v) Managerial Labour Market:

Of all the sociological labor markets, the managerial labor market is the most diverse. It is very similar to the bureaucratic approach in certain aspects. Success is determined by the organisation, and affiliation is with the organisation. Income is based on an employee’s position within the company. However, the bureaucratic model’s rational–impersonal component is not fulfilled, particularly at higher organisational levels.

For example, Professionals can look for management jobs and companies can post job vacancies for managers on platforms like Indeed, Glassdoor, and LinkedIn.

Features:

• Hierarchical Structure: These markets are characterised by a hierarchical structure that defines various levels of authority and responsibility.
• Skill-Based: People with certain managerial abilities, such as strategic planning, leadership, and decision-making, are necessary qualities in this sector.
• Demand-Supply Dynamics: The supply of skilled employees seeking managerial jobs and the demand for managerial talent from organisations influence this labor market.

Advantages:

• Increases Efficiency: The completion of duties and the achievement of organisational objectives can be done faster and more effectively with standardised procedures.
• Flexibility: Companies that use the managerial labor market to fill available positions or address skill shortages are better able to adjust to shifting market conditions.
• Specialisation: To improve performance in particular projects or departments, managers with specialised talents or industry knowledge can be applied to manage those areas.

Disadvantages:

• Extensive Competition: This labor market has high number of job seekers which creates competition among employees to get the prestigious job.
• Costly Method: The organisation have to incur huge costs in recruiting required employees with specialised skills. Thus it is costly method.
• Skills Mismatch: There may be times when businesses have difficulty finding managers who have the expertise and skill level necessary to fulfil their unique needs.