Document Type


Publication Date

Winter 1997


This article analyzes employee participatory programs from the internal labor markets perspective. Internal Labor Markets (“ILM”) refer to the explicit or implicit agreements between employer and employees incorporating rules governing wages, working hours, promotion opportunities and grievance procedures. In order to function properly, ILMs require employees to learn skills that are valuable to the contracting firm, but are of much lesser value elsewhere. Employees agree to acquire such “firm-specific” skills and employers agree to subsidize the training needed to obtain these new skills. It is a mutually beneficial arrangement: employers expect to observe increases in productivity and efficiency and employees expect increases in pay and employment security as their tenure with the firm increases. These implicit or explicit agreements, however, may not be realized. A countervailing characteristic of ILMs is that once established, both parties might have strong incentives to refuse to perform, that is, to engage in opportunistic behavior. Examining ways to prevent such behavior is the central theme of this Article.



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