Internal labour markets: an institutional perspective on recent research in personnel economics

The interplay of socio-cultural and economic forces produces important institutional features within the economy. Institutionalist labour economists have established one of these key features to be internal labour markets (ILMs). This paper discusses the origins and development of the concept of ILMs in the institutionalist labour economics tradition. Recently personnel economics has emerged as an important new branch of the neoclassical school of labour economics and has turned its analytical attention to ILMs. This paper describes the emergence of personnel economics and then critically examines the personnel economics approach to the empirical study of ILMs. It is argued that personnel economics has a limited understanding of the concept of ILMs and has adopted an inadequate methodology, overly reliant on quantitative techniques, for studying them. Finally, the paper makes the case for an approach to studying ILMs, which takes seriously the consciousness of economic agents and the important role played by social forces in creating and maintaining ILMs.