Noncompeting Groups Research Paper

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The concept of noncompeting groups—labor that is sheltered from market competition—has a controversial history that parallels the evolution of labor markets during industrialization. Since the mid-nineteenth century, noncompeting groups have been variously defined in terms of occupation, social class, unionization, gender, race, and economic  disadvantage. More  recently,  the  microeconomic  foundations  of noncompeting  groups have also been a topic of study.

Noncompeting Groups and Industrialization

Noncompeting  groups were largely peripheral to  labor market analysis at the time of the Industrial Revolution. Adam Smith (1723–1790), for example, emphasized the importance of “a competition among masters, who bid against one another in order to get workmen” when labor demand is growing and among workers who “bid against one another” when labor supply exceeds demand (Smith [1776] 1937, bk. 1, chap. 8, p. 71).

It was the Irish economist J. E. Cairnes (1823–1875) who coined the term noncompeting  groups as applied to broad occupational categories—artisans and small retailers, highly skilled producers, and professionals (Cairnes 1874, p. 68). Cairnes saw entry into these groups as limited by law and custom, nontransferable skills, and the constraints of poverty (p. 62). Foreshadowing subsequent analysis of noncompeting groups by social class and race, John Stuart Mill (1806–1873) perceived these barriers as “so complete … as to be almost equivalent to a hereditary distinction of caste” (Mill [1848] 1909,  vol. 1, bk. 2, chap. 14, p. 480), but he also saw education and training as a source of intergenerational mobility between “grades” of labor provided that  rules of social custom could be relaxed.

The turn of the century, however, lessened the importance  of  noncompeting  groups  (Fishback 1998),  and English  economist  Alfred Marshall  (1842–1924)  saw technological change and the growth of mass production as reducing skill barriers to mobility and favoring transferable workforce attributes such as “sagacity and energy” and  the  ability  “to  accommodate  oneself quickly  to changes in  detail of the  work to  be  done”  (Marshall [1890] 1930, bk. 4, chap. 6, secs. 2–3).

The Reemergence of Noncompeting Groups

The growth of unions after World War II (1939–1945) focused attention on the role of labor market institutions, such as unions, in contributing to noncompetitive elements in labor markets and wage determinations (Dunlop 1958; Lewis 1986; Hirsch and Addison 1986). At the microlevel, these distinctions translated into  the  “balkanization” of labor markets (Kerr 1954) and a “new industrial feudalism” (Ross 1958). At the microeconomic level, entry into occupations was sometimes controlled by unions and licensure, hiring by firms was limited to entry jobs, and wage-setting was insulated from competitive forces by entry barriers and bargaining power (Reynolds 1951).

As unions and collective bargaining diminished and new social concerns emerged during the 1960s and 1970s, barriers to employment affecting “noncompeting” groups defined by gender, race, and class began to receive attention. Theories of discrimination reflecting segregated labor markets were developed (Becker 1957; Arrow 1972); persistent earnings differentials by race, gender, and class were identified (Blau and Kahn 2000; Cain 1987); and there was renewed interest in “dual economy” models of labor market segmentation (Lewis 1979; Doeringer and Piore 1971;  Gordon,  Edwards, and  Reich 1982;  Darity  and Mason 1998). However, the importance of these noncompetitive elements in labor markets remains controversial (Cain  1976;  Wachter  1974;  Dickens and  Lang 1993; Gordon, Edwards, and Reich 1982).

The Microfoundations of Noncompeting Groups

A parallel stream of analysis exploring the microeconomics of noncompeting groups has also flourished since the 1960s.  Economists  extended  the  1950s  research on employment  practices within  firms by developing the concept of internal  labor markets in  which long-term employment matches were formed that favored “internal” over “external” labor mobility (Doeringer and Piore 1971; Williamson, Wachter, and Harris 1975).

The legacy of this research on internal labor markets as noncompeting groups is a new focus on organizational efficiency as a response to various failures of competitive labor markets—firm-specific skills, poor information on the productive qualities of workers and the adverse aspects of jobs, principle-agent conflicts arising from difficulties in monitoring worker productivity, and the difficulty in writing employment contracts that could fully anticipate future contingencies. This approach was initially articulated  in  Oliver  Williamson’s  Markets and  Hierarchies (1975) and has been refined under the rubric of the “personnel economics” (Lazear 1999).

In this new incarnation, the limited entry, job hierarchies, and wage premiums found in internal labor markets were seen as improving the efficiency of imperfect external labor markets. Firm-specific skills led employers to offer efficiency wages (pay premiums above market rates for productive worker attributes) and promotions as incentives to reduce quits among trained workers; the threat of discharge from high-wage career jobs provided incentives for motivating productivity and reducing shirking; and implicit  contracts  providing  high  wages and  secure employment markets were an efficient response to economic uncertainty (Katz and Summers 1989; Lang, Leonard, and Lilien 1987).

Implications for Inequality and Economic  Performance

Early theories emphasized the market distortions caused by noncompeting  groups, as did  subsequent work on labor markets segmented by unions, race, gender, class, and the employment practices of firms, as did much of the postwar research on the microfoundations of competing groups. In contrast, the new microeconomics of internal labor markets has tended to focus on the role of organizational efficiency in improving the economic performance of firms, and a large literature is emerging on the productivity gains to be made from sharing these efficiency gains with workers through higher wages, promotion opportunities, and participation in management decisions (Doeringer, Terkla, and Evan-Klock 2002, chap. 1).

The institutions of organizational efficiency, however, can also contribute to the ability of noncompeting groups within firms to increase their share of these gains in ways that may have adverse consequences. For example, firmspecific investments in training and labor market information, as well as unionization, can endow “insiders” with bargaining power that can be used to raise wages and limit job access by “outsiders” (Solow 1985). High wages can contribute to unemployment (Yellen 1984), and can also result in large pools of job applicants that make it easier to use race and class as exclusionary hiring criteria, while job ladders that  provide efficient training can also become barriers to internal mobility by gender and race (Osterman 1979). In effect, noncompeting efficient internal labor markets can be both  sources of productivity growth and enclaves of empowered insiders.


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