Human Resource Management - Internal Labour Markets

Essay by khjenks May 2004

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Human Resource Management - Internal Labour Markets (ILMs)

Occur when firms adopt a policy of recruiting workers at a low-level, then advancing them through a sequence of jobs within the enterprise

Employee's entire career takes place within a single organisation - 'cradle-to-grave'

Typical employee relationship with the firm are characterised by:

1. Long-term attachments

· The longer a worker is happily employed, the greater the worker's commitment and loyalty will be to the firm

· By creating an ILM, the firm can keep the employee motivated and content by, for example, instituting formal grievance procedures

· This enables the firm to create a superior atmosphere

· Recent empirical evidence indicates that ILMs are related to greater organisational commitment and longer employee tenure

2. Hire mostly at entry level

· Commonly hire a cohort of graduates and train them together

· Creates useful support networks

· Induces healthy competition

· Facilitates relative performance evaluation

3. Promotion from within

· Introduces long-term perspective

· Enables employees to determine a career path within the organisation and achieve it

· Have a goal to work towards, increases performance

· But, can demotivate workers as they must progress up the hierarchy - cannot jump layers

· Further problem is the role of 'losers', those who are not promoted

· May feel highly stigmatised and have negative feelings towards the company

4. Training, both general and firm-specific

· Training should not be viewed as an expense, but as an investment in the human capital of employees

· According to the Human Capital Theory, firms should only train workers if the cost of training is less than the gross benefits received minus the increase in salary following training: B - S > C

· If this is the case, training workers will enhance the...