Labour market segmentation
Labour market segmentation (LMS) refers to persistent differences in the working conditions of individuals in the labour market that cannot be attributed to differences in productivity alone. In real terms, this means that while some workers enjoy stable and secure careers with good development prospects, others face instability in employment, income uncertainty and poor career prospects.
Traditionally, LMS is characterised by a labour market that is divided into two segments, often referred to as ‘primary’ and ‘secondary’, though it can include more. The rewards of primary jobs, in terms of earnings, working conditions, job security, training opportunities and career prospects, are high; those of secondary jobs, low. A key element in LMS relates to mobility and, more specifically, to the limited mobility between primary and secondary segments. As a result, the differences are not only relevant to an individual’s first entry or even their re-entry into the labour market, but rather persist over time.
The term dates back to the 19th century, but it became the subject of more research in the early 1970s in light of growing unemployment and mounting evidence of the existence of at least two labour market segments. The segmented nature of the labour market was further reinforced by reforms at the margins of the labour market in European countries in the 1980s and 1990s. These reforms – enacted mostly in continental and southern EU Member States – relaxed employment protection legislation to counter rising structural unemployment and to boost the competitiveness of national economies. While this move created more jobs, these jobs were precarious and brought with them a growing stock of labour market ‘outsiders’ among the employed. This process of flexibilisation accelerated following the 2008–2009 crisis.
Differences in working conditions are to be expected based on the dynamic between, on the one hand, a country’s productive structure and demand for labour and, on the other, its labour supply, that is, the characteristics of the available workforce. However, differences in working conditions between groups that share similar characteristics in terms of their skills, occupation and experience indicate that other factors determine labour market outcomes, pointing to the possibility of labour market segmentation. These factors could include institutional settings, the economic cycle in a country, or employer strategies that create more or less favourable conditions for specific worker groups: for example, by exploiting flexible forms of employment for tasks not related to their core business.