Split Labor Market

Defining the Concept

A split labor market occurs because racial and ethnic groups have different levels of resources, and employers engage in efforts to maximize profit by paying as little as the market will bear for a particular job. When a group has fewer resources, members may be willing to accept lower wages for the same kind of job than are members of a more economically advantaged [Page 1275]group. Usually, the low-paid group is a recently arrived ethnic minority and the high-paid group corresponds to the majority. Feeling threatened by the new competition, the high-paid group engages in exclusionary behavior.

In a split labor market situation, the majority may use unions to completely exclude the ethnic minority from getting jobs or to segregate them to less desirable occupations and positions. The majority may also use its political power to create legislation criminalizing behaviors unique to the minority group; the separation of the minority group from the general population, and therefore from job competition, is then justified on moral and legal grounds. Exclusionary behavior by members of a majority has been identified as one of the causes of ethnic entrepreneurship; when other options are closed to them, members of the minority group start their own businesses.

Related Theories

Besides the split labor market theory, two other theories attempt to explain different wages for similar jobs: dual economy and segmented labor market. According to the dual economy approach, organizations in a particular economy are divided into two sectors: core and periphery. Core organizations have a dominant position in their markets and tend to be bigger; have more complex organizational structures, use more sophisticated technology, and exercise power over other organizations; or are insulated from market pressures. Periphery organizations tend to be smaller, have a smaller number of levels of hierarchy, use only basic technology, and face stronger competition in a particular market.

Because of their “structural” differences, core and periphery also present variations in the way companies organize work, as well as their employment practices and the opportunities that they offer to their employees. The more complex organizations in the core rely on company-specific skills and have a vested interested in keeping and developing talent, which usually translates into better wages and more training for workers. Jobs in the core are better paid and more stable over time because organizations in this sector are shielded from the effects of sudden changes in market conditions. The many layers of hierarchy in the core allow for career paths inside the organization, providing workers with the possibility of moving to better, higher-paid jobs as they gain more experience, knowledge, and skills.

The periphery, in contrast, offers lower-paid jobs, fewer benefits, little training, no opportunities for career advancement within the same organization, and a lack of stability because of vulnerability to market changes. Individuals' economic well-being depends at least partly on the sector in which they find jobs. The core-periphery divide explains the existence of differential rewards for similar jobs depending on the characteristics of the organization offering the position.

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