Labor market segmentation

Labor market segmentation is the division of the labor market according to a principle such as occupation, geography and industry. One type of segmentation is to define groups "with little or no crossover capability", such that members of one segment cannot easily join another segment. This can result in different segments, for example men and women, receiving different wages for the same work. 19th-century Irish political economist John Elliott Cairnes referred to this phenomenon as that of "noncompeting groups". A related concept is that of a dual labour market (DLM), that splits the aggregate labor market between a primary sector and a secondary sector. The theory of labor market segmentation contrasts with neo-classical economic theory, which posits the existence of a unified market for labor, consisting of buyers and sellers in open competition. The labor market thus functions as do other markets. In this model, the difference between different workers' wages and conditions arise from individual differences in their human capital (skills, experience, or formal education) or tastes. On the latter, as part of the theory of compensating wage differentials, those who prefer risky or dirty jobs receive higher compensation than those who take safe or clean ones. Put another way, differences in compensation for labor arise only on the supply side. The theory of labor market segmentation posits that differences on the demand side imply differences in compensation that are not explained by individual worker characteristics. Labor markets are not perfect markets. Non-market institutions such as craft unions and professional associations affect employer strategies, producing different results for workers with similar characteristics. All workers should be subject to the same employment standards, such as minimum wages, maximum hour laws, occupational safety, security and health laws, regardless of sector. Modern labor market segmentation theory arose in the early 1960s.