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

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6.3 The roots of segmentation

Why does segmentation occur? One approach to this question focuses upon the evolution of the product markets, from the competitive and the localised to the producer dominated, and from the national to an international market. Technological change makes capital-intensive methods of production possible. Employers, however, are unwilling to undertake large-scale investment unless the product demand is stable and predictable; when demand is variable, labour-intensive techniques are preferred. A growing division is found between firms which cater for stable markets and those in unstable markets. Firms with stable product demand create primary conditions of employment, including, notably, job security. Firms which face unstable demand operate in the secondary segment of the labour market.

The contours of segmentation, defined according to stability, fluctuate depending on the state of the economy. When labour markets are tight and product markets favourable, employers seek to tie workers to the firm by expanding the number of primary jobs. However, when there is a downturn, particularly one that proves longer and deeper than anticipated, employers seek to increase the share of secondary jobs, emphasising the virtues of functional flexibility, in terms of workers being able to undertake a number of different tasks (multi-skilling) and numerical flexibility – varying the number of workers through lay-offs and short-time working.

The theory of segmentation advanced by radical economists (for example, Rebitzer, 1993) takes a different tack and focuses upon changing systems of organisation within capitalist firms. The key to segmentation, they believe, is the strategy employers use for the control and motivation of their workforces. Systems of labour control within organisations that had been developed prior to the 1950s, notably the personalised discipline of ‘simple control’ and the impersonal machine-pacing of ‘technical control’, proved increasingly ineffective as some firms turned into large corporations and worker organisation became stronger and more influential. These large employers turned instead to ‘bureaucratic control’. As well as providing job security and career prospects in order to win the loyalty of employees, they developed impersonal discipline and monitoring procedures. Internal labour markets emerged and with them the differences between the job rewards of primary employers and those of employers who lacked the incentive to abandon the secondary segment.

The forces which led some employers to create primary jobs thus began with the emergence of the large corporation. Simple control, the open, highly visible, direct command rule by supervisors over subordinates, proved less viable in large plants; the interdependence between workers in mass production systems made it difficult to measure the output of individual workers. Additionally, the power wielded by large firms over product markets permitted them to take a longer view of the market and its likely level of stability. As a result they could offer superior job rewards. At the same time, worker solidarity was undermined by the introduction of job ladders to achieve status differentiation between workers. The rationale for the job ladders was to motivate workers and generate commitment rather than develop skills. The internal labour markets of primary employers represents a sophisticated version of the traditional capitalist strategy of ‘divide and rule’.

Within the radical approach, the position of disadvantaged groups is seen as reinforcing the tendency toward segmentation. Segmentation limits the opportunities available to women and minority groups while the forces which support discrimination also help promote segmentation. The differentiation that exists between jobs is easier to maintain when it is associated with differences in workers' characteristics rather than the job itself.

In recent years there have been a number of changes in both product and labour markets in the UK which have led some researchers to rethink the nature of segmentation. Product markets have become more competitive, not simply in terms of increased pressure for lower prices but also in terms of demands for higher quality products and more frequent changes in product specification. In order to achieve and maintain a competitive advantage in these changing conditions, some firms have adopted employment policies which seek to motivate and promote commitment from workers. At the same time, there has been considerable deregulation in the labour market in Britain. This has allowed firms to be more flexible in determining the conditions under which they employ workers and some firms have taken the opportunity to directly reduce their labour costs thereby moving towards secondary segment employment. Other organisations, however, have used the opportunity to introduce innovations such as team-working, multi-skilling and quality circles. Attempts to promote motivation and commitment are based on the philosophy of human resource management, thus moving the organisations into (or further into) the primary segment. However, the types of organisations which benefit from employment practices that foster stability and commitment are not only those traditionally found in the core sector and the simplistic dichotomies that have traditionally underpinned the segmentation approach have given way to differences that are a matter of degree rather than of kind.

The following case study examines the consequences of deregulating the UK docks industry. This is an industry that has used deregulation in the labour market as a way to directly reduce its labour costs. In the process, however, it has moved from the organised, primary sector into the secondary sector.

Docks: The payback

Docks deregulation has led to more millionaire managers, more redundancies, and most alarmingly, more accidents at work. Recent events at Tilbury demonstrate this dramatically. Chief executive John McNab has just pocketed £5 million from the sale of the port to Forth Port Authority. The authority, incidentally, paid nearly four times for the shares than the price paid to the dockers who were made redundant. Forth paid £81.01 for each share whereas at Tilbury the dockers were forced to sell their share for a maximum of £22.72.

To make the sale of the port an attractive proposition, the number of dockers – or cargo handlers as they are now called – has been slashed from nearly 800 to about 300 since deregulation five years ago. And the accident rate among those left has more than doubled. Before deregulation, the national dock accident rate was 3.1 per cent. Since then it has risen to 7.2 per cent. And this figure probably understates the real rate because of the increased use of casual workers, who are less inclined to report accidents.

At Tilbury, the accident rate is even higher – it stands at 7.8 per cent. This figure comes from statistics compiled by the Port Safety Organisation, to which the employers are affiliated.

Stress and fatigue are obvious factors in this increase. And that is hardly surprising when more arduous conditions of employment have been introduced at Tilbury, including compulsory overtime and double shift working. A recent Health and Safety Executive information sheet on dock work fatigue stated:

The causes of fatigue can include not only severe physical effort but also the effect of working at times that are contrary to the body's natural inclinations, e.g. at night or on some systems of shift work, intense concentration and working continuously for long periods … This can lead to stevedores failing to ensure that they are in a safe position with the result that they are hit by a falling object or struck by a swinging load.

John Connolly, national docks and waterways secretary of the T&G, commented on the similarities of what has happened at Medway:

Tilbury was sold to the management and employees buy-out group for just £34 million and they have now sold it for £130 million … The position is very similar to what happened in Medway where shares were sold to staff but were soon followed by an exercise of cutting staff numbers and reducing their terms and conditions of employment. When the men refused to accept these proposals they were made redundant and were paid just £2.50 for each of their shares. Six months later these same shares were sold for £38.50 each in a takeover.

At Tilbury the signs have been evident for two years that the port has been consistently reducing the number of people employed and imposing more arduous conditions of employment, while bringing in casual labour.

Earlier this year tenders to buy the port were asked for and the successful tender came from Forth Ports Authority who bought it as a low cost base, with a low workforce with reduced conditions of employment. This had been done on the back of casual labour and imposed conditions.

At the same time there has been a significant increase in industrial injuries in the ports generally, despite the efforts of the Port Safety Organisation.

Tug workers are also suffering from attacks on their working conditions. There has been reduced manning on tugs combined with increased working hours,' said John. ‘The Health and Safety Executive has stated that the longer hours, use of casual workers, and worsening conditions has led to an increase in stress and fatigue in the industry.’

Source: Pentelow, 1996