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Economics explains discrimination in the labour market
Economics explains discrimination in the labour market

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6.2.1 Job rewards

Segmented labour market theory views the labour market as systematically differentiating the job rewards achieved by comparable individuals. The high pay of primary workers cannot be explained simply in terms of their higher quality of labour since many secondary workers are capable of performing well, given the opportunity to do so. The labour market is thus seen as a key ingredient in the generation of economic inequality and not a passive mirror of the inequalities which people bring to it. Wage structures are differentiated by employer characteristics rather than worker attributes.

This is not to argue that all secondary workers are as good as all primary workers. Labour quality will, in general, be higher in primary jobs. The important point, however, is that differences in labour quality across jobs is less than that in pay and the direction of causality between pay and labour quality is reversed. Wage structures are taken as given, differentiated by employer characteristics rather than worker attributes. Under such conditions high-paying employers can take their pick from the applicant queue and rationally hire labour of high quality. The compensation, however, is only partial, with the differences in job rewards exceeding that in worker quality.

Labour quality and labour productivity must, therefore, be carefully distinguished. Productivity is an attribute of the job rather than the worker and depends upon the equipment available at the workplace and the product market served. Primary workers have higher productivity than secondary segment workers because of the jobs in which they work rather than because of who they are. Were they confined to secondary employment, with its labour-intensive techniques and unfavourable product markets, their productivity would be correspondingly lower. Worker quality, in contrast, is defined in terms of attitudes, behaviour and values.

In many instances, the skills that exist at the workplace involve learning by doing and are characterised by their informality in contrast to the more formal investment framework proposed by human capital theory. Acquisition of these skills involves being ‘shown the ropes’ by fellow workers and is not a distinct process within the firm. It is more a process of socialisation that involves being accepted by existing workers, as well as the internalisation of particular sets of norms and values, than a formal training programme. Certain groups of workers are thus segregated from better jobs because they are less acceptable socially rather than because they lack ability. Employers may also believe that particular characteristics, such as gender and race, correlate with those values and norms which characterise primary segment employment.

A similar divergence of interpretation also exists for employment stability. It is argued that the role in the family (for example youths and married females) or in society (for example inner-city, non-whites) of many secondary segment workers may mean lower intrinsic job stability than that displayed by primary workers. The segmentation approach, however, emphasises the instability of jobs not workers. Many secondary workers, particularly married females, may be interested in and available for steady work but are denied access to it. Thus while the supply side does exert an influence, it is seen as less important than the demand side and social institutions in explaining the differentiation of outcomes in the labour market.