Beyond Industrial Dualism

Market and Job Segmentation in the New Economy

Thierry J. Noyelle

• Publisher: Routledge
• Year: 2019
• eBook ISBN: 9780429721847
• Edition: 1
• Topic: Negocios y empresa
• Subtopic: Negocios en general

This book attempts to identify some principal dimensions of the process of market and job restructuring by means of case studies of service companies. It places special emphasis on the job restructuring issue and, in particular, on the decline of internal labor markets in the U.S. economy.

1
Introduction

We stand at a critical juncture in U.S. economic, social, and technological history. We are witnessing no less than the demise of an earlier economic system, centered on the mass production and mass marketing of industrial goods, and the emergence of a new paradigm of economic development emphasizing services, flexible production, and customized consumption (Stanback et al., 1981; Piore and Sabel, 1984; Ginzberg et al., 1986).

In the new paradigm, earlier ways of working, based on blue-collar factory employment, are being replaced by new ones, involving primarily white-collar office employment. Yesterday's highly standardized outputs churned out by high-volume assembly lines are giving place to today's heavily customized goods and services, increasingly produced in batch form or in smaller settings. Markets that were once mostly regional or national in scope are becoming increasingly international. The earlier strategic role of commodities, such as oil, electricity, steel, and chemicals, is being superseded by that of knowledge-based and information-based services, which are rapidly becoming the most critical inputs in economic processes. The latter transformation is best demonstrated by the formidable growth of producer services in the U.S. economy in recent years, both in employment and in value-added terms (Stanback et al., 1981).

Beyond Industrial Dualism

The rise of this new economy is bringing about a fundamental restructuring of both markets and jobs. Industrial dualism—the old way of structuring markets and jobs in the economy—is fast disappearing.

During the industrial period, spanning from the 1920s to the 1960s, there had emerged a structural dichotomy between a core economy comprising mostly large manufacturers and a peripheral economy dominated by small manufacturing firms and service organizations. Throughout the core economy, large manufacturers tended to operate in an oligopolistic environment, where profits and employment were sheltered from the worst possible impacts of the business cycle. By comparison, firms in the peripheral economy faced a far more volatile, competitive environment. They typically bore the brunt of the impact of the business cycle (Averitt, 1968). Out of this market-based dichotomy, a particular structure of labor market segmentation had arisen. Ceteris paribus, workers employed by large employers from the core economy, faced far better prospects for long-term improvement in earnings and job mobility than those hired by firms from the peripheral economy (Doeringer and Piore, 1971).

In the late 1960s and early 1970s, as employment and output growth shifted to services and high-technology areas, a new market structure began taking shape. As a result of the trend toward deregulation and as a consequence of the rapid internationalization of the U.S. economy, the oligopolistic environment of many core sectors of the economy started crumbling. Many large firms began facing a marketplace far more competitive than that which they had known for the previous thirty or forty years. In turn, as the traditional differences between large, oligopolistic enterprises and small, competitive firms weakened and as the old distinction between "leading" manufacturing sectors and "lead" service sectors lessened, new differences arose between "declining" and "rising" firms. The meaning of "decline" or "rise" came to be associated with the capacity of firms, both small and large, whether service or manufacturing, to compete in an often less and less regulated and more and more internationalized marketplace. Not surprisingly, as had happened earlier, this transformation in the structuring of economic markets helped set in motion a major restructuring of labor markets. Aided by the steadily increasing flow of high school and college educated workers, and helped by the advent of new technologies, firms began emphasizing different uses of capital and labor, stressing quality of the labor force over sheer numbers. This new emphasis was in contrast to the previous period during which the principal concern of large corporations often had been to secure access to large labor pools to staff assembly lines and clerical operations.

The new emphasis on high-skilled work and well-trained labor is partly responsible for the recent decline in the role of the internal labor market and the increasing reliance of firms on the external labor market. The term "internal labor market" refers to the set of institutional mechanisms that large firms in the past had put in place, in house, to help train, prepare, and promote their own labor force as a way to continuously meet staffing needs. In place of internal labor markets, firms now operate with a multiplication of entry points, with levels of educational achievement (less than high school, high school, junior college, four-year college, professional schools) largely determining the job opportunities open to new employees. In turn, such changes are fueling the trend toward the widespread development of professions and paraprofessions. Newer, mostly laterally and occupationally-driven forms of mobility are now emphasized over the mostly vertical and firm-driven mobility formerly stressed in the internal labor markets.

This book attempts to identify some principal dimensions of this process of market and job restructuring by means of case studies of service companies. Special emphasis is placed on the job restructuring issue and, in particular, on the decline of internal labor markets. The book is the product of a research effort begun in 1982 under funding from the Rockefeller Foundation (Noyelle, 1983) and completed in 1985 with support from the Ford Foundation. While the materials presented here are primarily empirical, I do make a deliberate effort to extend beyond the case studies themselves and to conceptualize some of the trends that they indicate. This effort is tentative, not definitive. More will have to be known about the contours of the emerging service economy before a fully rounded conceptualization can be developed. In a sense, we are at a too early stage in the development of this new economy to understand fully the directions it is taking.

Outline of the Book

In the next chapter (Chapter 2), I point to processes of market and job segmentation that arose under industrial dualism and are now weakening or disappearing. The following three chapters illustrate empirically the changes hypothesized in Chapter 2 and identify emerging new processes of segmentation by means of three case studies of service firms. The case studies include a large retailing organization (Chapter 3), a large utility company (Chapter 4), and a large financial firm (Chapter 5). In Chapter 6, some attempts are made to conceptualize the new processes of segmentation and to show the new labor market interactions being brought about among major groups of workers. Critical issues such as skills, technology, education, training, and occupational mobility are examined. Chapter 7 concludes the book with policy pointers. This final chapter places special emphasis on some of the implications of my findings for employment opportunities for disadvantaged workers.

Before moving on to the next chapter, some words are needed to explain the choice of the three case study companies.

The three companies were selected because they are service firms, and because a central premise of this book is that the United States is moving toward an economy dominated by service organizations. Such a choice is helpful not only in shedding new light on the probable future but also in clarifying the past. Traditionally labor market economists have tended to be vague in their treatment of service firms, preferring to focus on manufacturing. The three case studies presented here demonstrate unambiguously that, in the past, large service firms were typically organized along the same working principles as their sister manufacturing organizations, making extensive use of internal labor market structures. The case studies also demonstrate that it is precisely the use of internal labor markets that is changing so dramatically.

The three firms were chosen to cover broad sectors of the economy: retailing, utility, and financial industries. To be sure, a more extensive study would have attempted to sample also the public, nonprofit (education and health), and manufacturing sectors. I have little doubt, however, that the transformations observed in these other sectors would mostly confirm the changes uncovered in the three sectors analyzed here. My colleague Thomas Stanback's ongoing work on technological change in the nonprofit and public sectors brings considerable support to the argument (Stanback, 1987).

The reader might wonder how general the findings can be when based on only three very large firms. It is important to understand that all three organizations are typical of what others are doing in their sector. R. H. Macy & Co., the retail organization selected for study, is, by all accounts, a trendsetter in human resource management in the industry. Interviews with other large retailers, such as J. C. Penney and Sears, confirm that. The insurance firm studied in Chapter 5 is prototypical of most others in its industry. This is confirmed by additional research which I have been conducting in the industry and which will be reported in a forthcoming book (Noyelle, forthcoming). The same can be said of New York Telephone whose experience is similar to that of many other utilities. In addition, as I will suggest in Chapter 6, the size of a firm as a determinant of the personnel organization appears far less important than it once was, thus weakening limitations arising from size-of-firm differences.

A major part of the three case studies is focused on identifying the structural characteristics that best define the quality of jobs. These characteristics include skills attached to jobs, the extent of on-the-job training, barriers to entry (prior skills, schooling, sex, race, or other), in-house opportunities for promotion, the short- and long-term stability of employment, and earnings.

The multidimensional nature of employment attributes has always made it difficult to develop broad measures of employment quality. Traditionally the notion of employment quality has been associated with the notion of opportunities for upward mobility. As suggested in the next chapter, under industrial dualism such opportunities tended to be found overwhelmingly in firms from the core sectors of the economy. In addition, employment attributes—income, skills, tenure provisions, training opportunities—tended to improve in conjunction with one another. In short, under industrial dualism the relationship between upward mobility and employment quality was typically straightforward.

This, however, might no longer be the case. If, as I believe, we have entered an era in which the role of internal labor markets has weakened and mobility is increasingly achieved through the external labor market, then the nature of the relationships between various employment attributes might also be changing. This major issue is addressed in Chapters 6 and 7, but is one that can hardly be assessed until the case studies have been reviewed. For this reason, the bulk of my effort in the three case study chapters focuses on assessing job characteristics one by one rather than on developing an interpretative model.

The three case studies are not written in exactly the same way. As I developed the material for the book, it became clear that each firm had something special to contribute to the understanding of the processes by which internal labor markets are being dismantled. At R. H. Macy & Co., it was the impact of the transformation of the managerial structure on the entire personnel system; at New York Telephone, the impact of changing skills, the need for aggressive affirmative action policies, and the new competition; at the insurance company, the impact of changing skills.

A final word about the case studies: These cases are meant to illustrate broad trends rather than emphasize findings highly specific to each firm. Nevertheless, at some point, changes cannot be divorced from the firm's particular history. This explains why each case is preceded by a short statement placing the firm in context; for that reason, the insurance firm preferred to remain anonymous. This forced me to be somewhat aloof in writing that particular case study. The other two firms were indifferent to identification.

The case material presented was developed through extensive interviews with key executives of the firms, industry analysts, union officials where appropriate as well as through research of public and corporate records.

In concluding this introduction, I wish to thank all of those who contributed to the preparation of this book. While the final responsibility for this manuscript is mine, many are those who helped to make it into a better book. First, I want to thank Eileen Appelbaum, Tom Bailey, Olivier Bertrand, Eli Ginzberg, Harvey Goldstein, Heidi Hartman, Larry Hirschhorn, Michael Piore, and Tom Stanback for their comments and criticisms on earlier versions of this manuscript. Second, I want to thank Ellen Levine and Shoshana Vasheetz for their assistance in preparing the various drafts as well as Penny Peace for her editorial work. Last, but not least, I wish to thank the many individuals who agreed to be interviewed for this study. While most of my informers wanted to remain anonymous, each and every one of them has my deepest gratitude for her or his personal contribution.

2
The Rise of the New Economy and the Dismantling of Internal Labor Markets

To be sure, the advent of the new economy did not take place overnight. As always in the case of profound economic changes, the shift to the new era of services and computerized information technologies gained momentum over a period of several decades.

Nevertheless, the 1970s represent a critical turning point. Because the rise of the new economy involves the shift of capital and labor out of the smokestack industries and into the high-tech and service industries, the formidable acceleration of the internationalization of the economy during the 1970s—partly as a response to the two oil shocks of the decade—contributed greatly to speeding the redeployment of resources. Many older industries, once largely protected from foreign competition, were suddenly put to the wrenching test of worldwide competition and forced to adjust.

In addition, the new generation of information technologies introduced during the 1970s, including distributed data processing and early computer networking, helped to further this economic transformation. By now these technologies have been embedded in many new products and services; they have become central to the new processes of production and new ways of working; and they have challenged the corporation, which often must restructure and reorganize if it is to make productive use of these new technologies.

The Development of Information Technologies and the Rise of the Service Economy

The introduction of the first commercial computers in the mid-1950s marked the beginning of early modern computer-based information technologies. These computers helped put in place large automated number-crunching capacity to assist corporations in performing many calculations at great speed and low unit cost. Mainframe computers were the principal pieces of machinery involved in this phase of automation

The era of computer-based information technologies brought major productivity increases in some sectors. In brokerage, transportation, and utility firms, for example, the new capability for data processing was the only way in which the vastly enlarged burdens of the "back office" could be handled after the early 1960s when the volume of transactions increased spectacularly.

In labor terms, mainframe technology generated a relatively well-defined demand for specialized personnel, primarily systems analysts, programmers, computer operators, and keypunchers. Its indirect labor impact on final users remained limited, however, since the use of the equipment was mediated by the systems divisions of large companies which employed much of the new, specialized personnel or by the mainframe data processing service bureaus which performed roughly the same function for a great number of middle- and small-sized companies.

In the late 1960s and early 1970s, a new era of computerization was launched following the introduction of freestanding minicomputer systems (later microcomputer systems), and on-line distributed data processing systems. This new era was made possible in part by the introduction of related technologies permitting massive data storage, high-speed processing capability (the microprocessor), and the development of user-friendly software.

In labor terms, distributed data processing began blurring the earlier distinction between computer specialists and users as computerized processing was gradually turned over to final users. This is the technology associated with the recent transformation of work and staffing in factories, back offices, engineering offices, sales offices, and the corporate offices of many manufacturing and service corporations. Distributed data processing is very much in evidence in the three case study companies presented in this book, be it in the form of electronic switching technology in the telephone industry, computerized cash register technology linked to accounting and inventory systems in retailing, or back-office processing systems in the financial sector.

While we are still very much in the midst of the introduction of distributed data processing systems, we already have begun moving into the next era of information technologies. Networking and telecommunications technologies are at the co...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Dedication
• Contents
• List of Tables and Figures
• Foreword
• 1 Introduction
• 2 The Rise of the New Economy and the Dismantling of Internal Labor Markets
• 3 Retailing: The Case of R. H. Macy & Co.
• 4 Utilities: The Case of New York Telephone
• 5 Finance: The Case of a Large Insurance Firm
• 6 Market and Job Segmentation in the New Economy
• 7 Policy Implications
• Bibliography
• About the Author
• Index