6th International Scientific Conference ISSN 2029-4441 print / ISSN 2029-428X CD

May 13–14, 2010, Vilnius, Lithuania doi:10.3846/bm.2010.083

BUSINESS AND MANAGEMENT 2010 http://www.vgtu.lt/en/editions/proceedings
Selected papers. Vilnius, 2010 © Vilnius Gediminas Technical University, 2010

GENESIS OF LABOUR MARKET SEGMENTATION

Sandra Jakstiene
Kaunas University of Technology Panevezys institute, Klaipedos str. 1, LT- 35209 Panevezys, Lithuania
E-mail: sandra.jakstiene@ktu.lt

Abstract. The article presents the genesis of labour market segmentation from the ancient times to the
present theoretical analysis and research results. Conducted a theoretical analysis shows that the
theoretical framework of the rudiments of employment lies in the ancient annals and letters written by the
priests. Work, labour, and supply - demand have always been discussed. The paper analyzes the labour
market theory of its development stages, the labour market segmentation theories of the modern approach
and the synthesis of the labour market segmentation evolutionary processes. Great contribution to the
labour market theories development was made by the classic schools of the eighteenth century: Adam
Smith (1723–1790), David Ricardo (1772–1823), Jean-Baptiste Say (1762–1832); in the nineteenth
century labour relations appeared as the phenomenon of the division of labour, led to an extremely wide
range of occupations and industries that influenced on the appearance of the embryonic segmentation
theories. Labour market theoretical framework was influenced by the classical school of fundamental
sciences, which allowed to analyze the evolutionary labour market segmentation approaches today.
Keywords: labour market, segmentation, genesis, evolutionary processes.

different attitudes on segmentation in the context

1. Introduction
In scientific literature economists have been
talking about markets for quite a long time.
Nowadays among a variety of existing markets
labour market plays a significant role. Labour,
work force and labour supply have been in focus
since old times. The rudiments of theoretical base
for hired labour are found in antique manuscripts
and writings by oracles. The 4th c. BC Greek
philosopher Aristotel laid the foundations for the
concept of labour. The Middle ages also spoke
about labour and wages: since the middle of the
13th c. faster development of hired labour has
taken place. The act of 23d of Edward III (that is,
in 1350) commonly called the “Statute of
Laborers” write “fixed rate of wages as follows:
for common labor on a farm, three pence
halfpenny per day; a reaper, per day, four pence;
mowing an acre of grass, six pence; threshing a
quarter of wheat, four pence; and other labor in
proportion”.
Since the middle of the 13th c. up to the end
of the 19th c. in the evolution of labour social
processes took place; under their influence human
work force more and more often acquired the form
of a good (trade) and became the most important
condition of capital functioning (Paulavičius
2002).
Phenomenon of labour market segmentation has
been drawing more and more researchers attention
since the 19th c. up to now. In the field of non-
fiction dealing with different theoretical and
practical aspects of labour market segmentation
of labour market (from non-competing groups to
new forms of labour market segmentation) are
emphasized; thus it seems to be purposeful to
reveal the input of representatives from different
schools into both labour market segmentation
theories and their development. Research areas,
researching labour market segmentation
theoretical aspects have been in focus of
discussions for quite many decades. Labour
market segmentation in different theoretical
aspects was researched by both foreign and
Lithuanian researchers (Mills 1909; Cairnes 1874;
Marshall 1920; Taussig 1921; Marsall 1998;
Dimou 2009; Form 2007; Kerr 1954; Dunlop
1957; Doeringer, Piore 1971; Baker, Holmstrom
1995; Taubman, Wachter 1986; Blau, Kahn 1999;
Gautier 2004, Becattini 1981, Lefresne 2002;
Hyclak, Johnes, Thorton 2005; Gautie 2004; Petit
2006; Sousa-Poza 2002; Lamotte, Zubiri-Rey
2009; Beržinskienė 2005; Martinkus, Stoškus, et
al. 2009; Matiušaitytė 2005 and others).
Labour market theoretical framework was
influenced by the classical school of fundamental
sciences, which allowed to analyze the
evolutionary labour market segmentation
approaches today.
This also proves the problematic nature of the
subject under discussion. The problem discussed
in the article may be formulated in the question:
what developing processes took place in the
evolution of labour market segmentation?
The article aim – the answer lies in the
genesis of labour market segmentation.

627
 S. Jakstiene
The research aim – to identify and structure
the individual periods of labour market
segmentation stages of development, which
showed the labour market segmentation in the
development process.
Goals of the research are:
1. Analyzing the very essence of labour market
segmentation theory.
2. To show stages of labour market segmentation
development.
3. Analyzing the labour segmentation approaches.
The research method. Non-fiction theoretical
foundations have been researched using both
systemic and comparative analyses, aiming at
revealing labour market genesis theoretical
aspects.
2. The very essence of labour market
segmentation theory
Modern labour market segmentation theory arose
in the early 1960’s. It opened the eyes of many
economists viewing the labour market as just a
market with people with individual characteristics
of education and motivation as well as technology
playing a major factor in terms of producing
output. This view later on helped us look at the
demand-side of the market, the nature and strategy
of the employers. The idea of non-competing
groups has been developed in theories that are
identified under the general label of labour market
segmentation theory. The two key formulations are
split into labour market theory and internal labour
market theory, both developed in the United
States. The labour market segmentation theory
revolves around the identification of a split
between two analytically divisions in the economy
and the labour market.
This model of the labour market segmentation
has been developed over the years to
accommodate the fact that different job
professionals work in completely different job
markets. For example, Lawyers and fashion
designers work in different markets. Some of the
major dividing-lines that have been identified are
occupational, geographical, and industrial.
Occupational labour markets arise from the
division of labour, increasing differentiation and
specialization. These workers are unable to switch
between occupations because they require
different skills and extensive investment in
training and qualifications. For example, nurses
and doctors form separate occupational labour
markets even though they work side by side in the
same organizations. For examples specifying the
minimum qualifications and experience
628
requirement it restricts the entry into an occupation
even if they work side by side in an organization.
Geographical labour markets are also defined
considering that neither employers nor workers
can move to another location without acquiring
considerable amount of costs. As a result wages
can remain higher in big cities as opposed to
smaller cities. For example there are a vast number
of unemployed people in certain parts of the world
as opposed to others primarily because of the
demographics, is it a town, city or near to home
work place\The workers differ in their tastes and
preferences for leisure time rather than work and
for financial reasons rather than rewards. Their
investment is their education, training, work skills,
and experience. But it still makes sense to analyze
labour supply and demand in the aggregate. The
primary sector and secondary sector, both these
sectors possess different wages and each
employment characteristics are different. The
concepts of primary and secondary labour markets
have now passed into conventional thought, with
the primary labour market commonly understood
to mean people with secure jobs and good
conditions of work in public-sector employment,
the large corporations and highly unionized
industries; while the secondary labour market is
understood to cover small employers, non-
unionized sectors of the economy, competitive
industries such as retailing, where jobs are less
secure and conditions of work and pay generally
poorest (The Structuring of Labour Markets 2009).
The theory of labour market segmentation
contrasts to the views of neo-classical economic
theory, which posits the existence of a unified
market for labour, consisting of buyers and sellers
in open competition with each other. The labour
market is seen as functioning in the same way as
other markets. In this model, the only 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 wages or salaries
than those who take safe or clean ones. Put another
way, differences in compensation for labour arise
only on the supply side.
In the theory of labour market segmentation,
there exists important differences on the demand
side which imply differences in compensation and
the like that are not explained by individual
workers' characteristics. Since labour markets are
far from perfect, non-market institutions such as
craft unions and professional associations play a
role, as do the different strategies employed by
 GENESIS OF LABOUR MARKET SEGMENTATION
employers, in producing different results for
workers with similar characteristics. Typically,
labour market segmentation splits the aggregate
labour market between the primary sector and the
secondary sector. Segmentation theory shows that
labour market is divided into certain segments,
which are being formed by economic, political and
social forces; it also points out the segmentation
causes and differences between characteristics of
individual labour market participants. The models
of labour segmentation puts employees into labour
groups or labour market segments. Once the
labour segments are defined, their relative
socioeconomic standing emerges as an important
issue. It can be stated here that segmentation is
being made for better analysis of market
opportunities. Segmentation methods allow also
revealing labour supply and demand opportunities
as well as evaluating labour market development
perspectives. Such results are widely applied in
forecasting labour market demand and supply.
Separate labour market segments analyses offer an
opportunity not only to evaluate the labour market
condition but also to more comprehensively base
its development perspectives according to different
labour market segments characteristics and
criteria. Segmentation lets create general labour
market activity and development model.
3. Stages of labour market
segmentation development
A huge input into labour market theories was
made by representatives of classical economic
school in the 18th Smith, Ricardo, Jean – Baptiste
Say, Malthus, Jevons formed the main theses
about free competition as the basic condition to
optimally use material, financial and human
resources; they also developed working worth
theory stating that the worth of a good depends on
the number of employees and their efforts needed
to produce it; they applied the theory into present-
day economics, finally they formed market
cooperation law between supply, demand and
price. Smith in “Wealth of the Nations“
emphasized advantages of division of labour and
specialization, defined market functioning and
highlighted difference in wages depending on
different jobs, which served as a background for
emergence of a variety of professions and fields of
economies, which had already existed as the very
rudiments of market segmentation development. It
could be stated that the basic idea of this economic
school was the idea of wages as the main labour
market mechanizm control idea (Smith 1776).
629
Among the first ones to define labour market
segmentation were Cairnes (1874) and Marshall
(1880). They raised the concept of non-competing
groups in labour market when the labour market is
being segmented from different sub-groups, where
every employee works in completely different
markets. They characterized non-competing
groups as groups of individuals, belonging to
different professional categories (craftsmen, little
retail firms, highly-qualified producers and
specialists). This is the main factor, reflecting
itself in primary labour market segmentation idea.
Further developing the concept of non-competing
groups in labour market Sidgwick (1901), Mill
(1909), Senior (1965) researched the correlation
between intellectual knowledge and work; non-
economical reasons for price setting in average
profit norm, such as regional differences as well as
the role of habits and traditions. Marshall (1980)
while drawing attention towards technological
changes and mass production growth stressed the
reduction of obstacles of employees skills, in case
they are able to adapt quickly to changes.
Accordingly, labour market was divided into
different markets (segments), where working
groups do not compete among themselves and
there is no connection among them. So the concept
of non-competing groups in labour market directly
influenced labour market segmentation theories,
which were more developed in the second half of
the 20th c. Neoclassical labour market model
offers that wages have to be equal. This idea was
backed up by the assumption of perfect
competition, use maximizing and homogeneity of
employees. However there are clear differences in
wages, as pointed out in the main model. There are
three basic neoclassical arguments explaining
differences seen between employees wages:
difference equalizing theory, human capital theory,
and wage effectiveness theory. Neoclassical
economists were the first ones to try and explain
wage differences in labour market (Marsall 1993;
Samuelson 1964; Hyclak, Johnes, Thorton 2005).
G. S. Becker and J. Mincer explained that “other
things are equivalent, only personal income vary
depending on the quantity of investment of human
resources: i.e. education and practice“ (Marshall
1998). Neoclassics emphasized that labour market
functions just as other markets where customers
and sellers meet and where there is an open
competition between them. However, Marshall
(1998) explained that labour itself is not a totally
homogenous good and employees differ by their
interests, suitability for the concrete job, some of
them work for pleasure, others only for money;
they also differ by their human resources:
 S. Jakstiene
education, investment into training and experience.
Some authors emphasized that neoclassical
economic labour market theory distorts the
person‘s professional situation process in labour
market, if to include into the process only
individual characteristics. Migration of segments
is limited, so possibilities of getting into different
segments are also limited (William, Dickens 1987;
Miller 1979).
The 20th century neoclassical critics Veblen
and Commons write in their works, that
classification system of labour characteristics
includes employees psychological and sociological
data. Followers of Cain differently from
representatives of neoclassical economic trend, see
discrimination results in labour market, other
systemic factors or even random factors, which
push employees into another sector (“bad works“),
into the anti-work direction, in this way
strengthening useless, unfavourable position of
employees with low-wages. Cain‘s followers raise
in neoclassical approach the main problem
connected with low education of employees, lack
of training; these factors make an impact on
unemployment and instability in labour market.
Neoclassisists should concentrate on structuring
and a possibility that these factors do influence
and are influenced at the same time by labour
market. The followers of institutional approach,
aiming to explain the difference of wages analyzed
internal labour markets and influence of
employees professional skills (Dunlop 1957).
Dual labour market theory asserts that the
American labour market is sharply divided
between good jobs and bad jobs. Because a
substantial portion of American workers are
trapped in bad jobs, without any realistic chance of
getting or having a better job in the future, they are
consigned to a lifetime of poverty. These claims
are old and controversial. Yet, in spite of the
counter-claims by critics, dual labour market
theory continues to influence research on labour
markets and inequality. Dual labour market theory
first emerged in the late 1960s from Doeringer and
Piore’s work on firm internal labour markets. It
received support from critics of human capital and
marginal productivity theory who argued that the
War on Poverty manpower programs had failed to
produce a substantial reduction in poverty and
underemployment, especially among minorities.
The critics argued these programs because they
failed to address structural deficiencies in the
creation and allocation of jobs (Doeringer, Piore
1971; Bluestone 1968; Harrison 1972; Gordon
1972; Reich et al. 1973).
630
However Hudson (2007), since then dual
labour market theory has continued to inform our
understanding of the American labour market. Its
utility has been underscored by a number of
developments: First, much of the recent research
on nonstandard and contingent work arrangements
(Appelbaum 1992; Barker, Christensen 1998;
Belous 1989; Blank 1998; Carré 1992, Callaghan,
Hartmann 1991; Gonos 1998; Morse 1998;
Polivka 1996; Tilly 1996) has relied on concepts
and ideas from dual labour market theory
(Freeman 1999; Harrison 1997; Kalleberg et al.
2000; Noyelle 1987; Reid, Rubin 2003).
Nonstandard jobs are more likely than traditional
work arrangements to pay low wages and less
likely to provide health insurance and pensions
(Hudson 1999; Hudson 2001; Spalter-Roth et al.
1997). Second, the tremendous influx of foreign
workers into the United States since the 1980s has
caused the labour market to become increasingly
stratified on the basis of national citizenship
(Ehrenreich 2002; Hochschild 2003; Hondagneu-
Sotelo 2001; Massey 1995; Phillips, Massey
1999). Finally, the decline in union membership,
the historical guarantor of good wages and benefits
for blue-collar workers (Freeman 1999; Freeman,
Medoff 1984) has contributed to the wage and
benefit bifurcation in the service sector (Harrison,
Bluestone 1988). New labour market segmentation
thesis argues that, as the practice of allocating
workers to inferior jobs on the basis of race and
sex has declined, employers have turned to
nonstandard work arrangements and immigrants to
supply labour for low-wage jobs (Hudson 2007).
The segmentation of labour market enables:
− to analyse labour market through the aspect
of the extent as well as the content;
− to survey the possibilities of the different
groups of people in the labour market;
− to train the qualified specialists according to
the demand in the labour market;
− to organize training and re-skilling courses;
− to distribute political means through the
different territorial units of the labour market;
− others (Martinkus, Stoškus et al. 2009).
While analysing causes of different labour
groups opportunities in labour market,
peculiarities of labour market and other problems
it is advisable to analyze and apply various
contemporary theories - Insider-Outsider Wage
Determination, Search Theory, Labour Market
Discrimination, Dual Labour Market Theory and
others (Lindbeck, Snower 1989; Stigler 1984;
Becker 1954), which enable to design the situation
in the labour market.
 GENESIS OF LABOUR MARKET SEGMENTATION

Generalizations of labour market segmentation The end of table 1

evolution processes are shown in Table 1. The concept of labour
Kerr (1954)
market segmentation.
Dunlop (1957)
Table 1. Labour market segmentation evolutional Various approaches to
Doeringer, Piore
processes explain the origin of
(1971)
segments.
Representatives, Baker, Holmstrom
Description
time-period (1995)
4 c. BC Greek Fundaments of labour Taubman, Wachter
philosopher Aristotel concept. (1986)
The act of 23d of Differenciating of wages for Blau, Kahn (1999)
Edward III (that is, in different jobs. Gautier (2004)
1350)
A Lindbeck, D. J. Insider-Outsider Wage
Labour division and Snower (1989) Determination, Search
specialization advantages are G. J. Stigler (1984) Theory, Labour Market
emphasized with an accent G. Becker (1954) Discrimination, Dual Labour
of difference in wages for Doeringer, Piore Market Theory.
A. Smith (1776)
different jobs on the basis of (1971)
which a variety of
Keat (1960) New forms of labour market
professions and industries
Reder (1955) segmentation without
turned up.
Okun (1973) economical, political, social
J. E. Cairnes (1874) The concept of non- Jackson, Jones (1973) factors, creates new sub-
A. A. Marshall competing groups was raised F. Lefresne (2002) segments between
(1880) in labour market. H. Petit (2007) professions, levels of
Researches were interested B. Lamotte, qualification, sectors and
in the correlation between J. B. Zubiri-Rey new hierarchic positions
intellectual knowledge and (2009) between companies.
work; non-economical A. Sousa–Poza
reasons for price setting in (2009)
average profit norm in
A. Marshall (1890) various regions as well as
H. Sidgwick (1901) the role of habits and As we can see in the table since ancient times
J. S. Mill (1909) traditions. The attention was researchers have been interested, analyzed labour
N. Senior (1965) drawn towards technological market and created theories which during different
changes and mass evolutionary stages have grown and expanded to
production growth, the the point of modern labour market segmentation
reduction of obstacles of theories.
employees skills, in cases
they were able to adapt
quickly to changes. 4. Labour Segmentation Approaches
They were the first one to
explain differences in wages While analyzing labour segmentation attitudes,
in labour market, open their variety is noticeable as well as differences
A. Marsall (1993) among various segmentation theories. Because of
competition existed among
P. Samuelson (1964) labour market dichotomy it consists of two labour
labour market participants,
G. Marshall (1998)
Hyclak, Johnes,
employees were differed in markets (primary and secondary), which are, if
Thorton (2005)
their hobbies and human compared, quite different. Labour segmentation
resources: education, approaches in labour markets with reference to
investment into studies and Matiušaitytė (2005), are shown in Figure 1.
experience. Introducing labour market segmentation
They notice discrimination
approaches “in primary labour market dominating
results in labour market,
other systemic factors or aspects are as follows: high wages, good working
even random factors, which conditions, job safety, low turnover, career
push employees into another opportunities, formal and informal career criteria,
G. Cain (1976) sector. The main problem isolation from external market forces and
raised was connected with participation in decision making, higher staff
low employee education, education and qualification, modern technologies
lack of training, which (polarizational theoretic approach), internal as well
influence unemployment and as external mobility (institutional approach), and
unstability in labour market. bureaucratic control (radical economical

631
 S. Jakstiene
approach); meanwhile the dominating aspects in
the secondary labour market are: unstable and low
wages, bad working conditions, high staff
turnover, poor motivating system, unstable
emplyability, frequent unemployment, low
qualification requirements, out-dated technologies
(polarizational theoretic approach), few career
chances or no chances at all (institutional
approach), simplified technical control (radical
economical approach). According to alternative
roles segmentation is determined by possessing or
non-possessing roles alternative to job“
(Matiušaitytė 2005). However, in non-fiction there
are many other approaches to segmentation.
Fig. 1. Labour segmentation approaches
(Matiušaitytė (2005))
Labour economists have contributed to the
analysis of trends in income distribution by
examining cyclical and secular changes in
occupational wage differentials (Keat 1960). A
neglected question is whether the occupational
categories used represent the most interesting
definition. Some of these studies explain the
changes in occupational wage structure on the
basis of labour quality (Reder 1955), others
emphasize demand (Okun 1973), and some
emphasize organization of occupational groups
(Maher 1961). Study of the cyclical variation in
632
occupational wage structure represents a
disaggregated analysis of the Phillips curve
(Jackson, Jones 1973); such study has become a
pertinent and controversial area of research due to
simultaneous inflation and unemployment. The
cyclical analysis of industrial wage differentials
rather than occupational wage differentials
(Wachter 1970) may be thought of as based on an
industrial rather than occupational definition of
labour segments (Hudson 2006).
According Lefresne (2002), some writers
developed the idea of the emergence of a new
segment: Professional (or Occupational) Labour
markets. In these models, the existence of a third
ideal labour market type is justified by the
appearance of new groups of professions in which
specific and organised markets ensure continuity
in the employment of qualified workers, even if
mobility between different sectors and activities
makes this work mode quite instable but relatively
secure with respect to new risks in the flexible
economy. The classic dualist vision divides
External Labour Markets (analysed by the
standard theory of competitive and non-organised
neoclassic balance) and Internal or Professional
Labour Markets (formalised by usage, habits and
social institutions) into two different fields. A new
dynamic approach emerges in this new reality, in
which an analysis of the degree of the
formalisation of labour and employment relations
is the most relevant. Petit approaches this issue
differently and considers, to the contrary, that
unemployment (Marxist reserve army) opens
Internal Labour Markets and gives employers the
advantage of an unfavourable situation for workers
(in which they develop a general insecure and
unstable process) (Gazier, Petit 2007). A new
Human Resources Management science offers a
more dynamic vision of labour and distributes
training and upward mobility opportunities (salary,
status, control of the productive process…) very
unequally in a very general instable context. New
individualised labour and employment manage-
ment is ranked below companies’ relations with
the product market and the financialisation of the
economy. This Human Relations Management
creates new subsegments between professions,
levels of qualification, sectors and new hierarchic
positions between companies (increased com-
plexity of primary and secondary sectors of labour
markets depending on the position of each worker
and his/her company in the next flexible economic
model) (Lamotte, Zubiri – Rey 2009) and to
identify and forecast the labour market demand,
the supply of labour force in the separate sectors of
economy within professions and groups of
 GENESIS OF LABOUR MARKET SEGMENTATION
professions. All this leads to the conclusions of the
economy of the labour market situation and future
development opportunities (Dubra, Kasalis, et al.
2008).
6. Conclusions
After revealing labour market segmentation
genesis theoretical aspects it could be stated that
supporters of both classical and neo-classical
schools claimed that the main idea was that of
wages, being the basic labour market mechanism
management tool. This idea is both accepted and
rejected by supporters of contemporary approach:
labour market is divided into different segments,
which appear under the influence of economic,
political and social forces; they also explain the
segment formation causes as well as differences
among individual labour market participants‘
characteristics. The condition that labour market is
an example of a perfect competition is rejected.
Job characteristics classification system includes
employees psychological and sociological data.
The followers of Cain differently from
representatives of economical approach see in
labour market discrimination, other systemic
factors or even random factors which push
employees into another sector. It should be noted
the followers of Cain see the main problem in
neoclassical approach related to low employees
education, lack of practice; they influence
unemployment and instability in labour market.
In summary, labour market segmentation
theories interpret why and how separate segments
appear in labour market; what segmentation
factors influence their formation. Analyses of
labour market segmentation approaches
highlighted their variety and differences between
different theories. It has also been noticed that new
labour market segmentation forms appear in
contemporary labour market.
The study conducted a scientific literature
review has identified and systematized the
individual periods of labour market segmentation
stages of development stand out of the labour
market segmentation in the development process.
Based on the analysis, identifies chronological
labour market segmentation stages (Stage I - from
the thirteenth century until the late nineteenth
century, Stage II - from the late nineteenth century
until the second half of the twentieth century,
Stage III - the second half of the twentieth century
to now).
Labour market theoretical framework for
research have had a great importance of the
classical school of fundamental scientific works,
633
allows to analyze the evolutionary labour market
segmentation approaches today.
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