Internal labor markets (ILM) are an administrative unit within a firm in which pricing and allocation of labor is governed by a set of administrative rules and procedures. The remainder of jobs within the ILM is filled by the promotion or transfer of workers who have already gained entry. Internal

labor markets Labour economics seeks to understand the functioning and dynamics of the Market (economics), markets for wage labour. Labour (human activity), Labour is a commodity that is supplied by labourers, usually in exchange for a wage paid by demanding ...

are shielded from the competition of external labor markets (ELM).Doeringer, Peter B. & Piore Michael J. (1971). Internal Labor Markets and Manpower Analysis. Massachusetts. D.C. Heath and Company However, competition of ILM exists within the firm in the form of job promotions and pay.Pinfield, Lawrence, (1995). The Operation of Internal Labor Markets. New York. Plenum Press. The main reasons why internal labor markets were developed are as follows:

Skill specificity

Skill specificity has two effects important to the generation of the ILM: it increases the proportion of training costs borne by the

employer Employment is a relationship between two parties regulating the provision of paid labour services. Usually based on a contract, one party, the employer, which might be a corporation, a not-for-profit organization, a co-operative, or any ot ...

, as opposed to by the trainee and it increases the absolute level of such costs.Chase, Ivan D. Vacancy Chains. Annul. Review Sociology, 1991. Companies are ever more seeking individuals with specific talents that can be an asset to their organization. Firms that require specifically trained individuals look for a stable

labor force In macroeconomics, the workforce or labour force is the sum of people either working (i.e., the employed) or looking for work (i.e., the unemployed): \text = \text + \text Those neither working in the marketplace nor looking for work are out ...