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Internal Labor Markets
Organizations vary in the barrier to entry for their internal labor markets. Larger organizations will invest in "building" internal labor markets to serve as a talent pool of qualified candidates to reflect their specific needs.
Here's an example…
Most of Company Z's job openings require skills and experience that can be attained only by working for Company Z. The company only hires from the outside for entry-level jobs and then trains employees for higher-level positions.
This is called an internal labor market and practices include setting wages by formal compensation policies and procedures. Staffing decisions and succession plans rely on the internal labor market for promotion, expatriate assignments, and related professional development.
Organizations use formal compensation structures to determine pay levels. To be competitive with the external job market, most organizations today use market pricing. Where an organization places a high value on some jobs that are key to its operations, it may take an internal equity approach.
| Market-based: Organizations use a market pricing approach for determining pay levels using salary surveys to identify the market pay rate for most of their jobs. (See DLC Course 73: Analyzing Salary Surveys.) | Internal Equity: Organizations utilize an internal equity focused approach for determining pay rates with a job evaluation process that values jobs in terms of their relative importance to the organization. This approach is also used to ensure that all jobs are compensated fairly without gender bias. (See Course 34: Using Job Evaluation in Your Organization.) |
Memory Jogger
Internal labor markets are: