37:575:100 Chap.2 Corporations and Work in the New Economy
Corporations and Work in the New Economy
The employment system that died
Week 3 compares old and new forms of work organization. The old form, which the Cappelli reading calls the employment system that died, took shape in large US corporations during the twentieth century. It replaced the foreman era, when a supervisor could hire from crowds at the factory gate and fire at will, with bureaucratic management.
Workers entered at the bottom of job ladders, were promoted from within, learned their skills on the job and were paid by job title and seniority. Economists call this an internal labor market.
Why firms built it
The slides give practical reasons.
Buying work on the outside market was costly when relations were low-trust, and much of the knowledge needed was specific to the firm, so it paid to train and keep people. Unions were the most important force pushing firms to standardize pay and rules, and after the 1930s unions and government together formed what the slides call the New Deal System.
Security was high for managers and reasonable for others, who faced temporary layoffs with recall by seniority.
Who was left out
The system never covered everyone.
Beside the primary labor market of career jobs sat a secondary market with lower pay and less security, and the slides note that women and minorities were less likely to reach the primary market.
Why it came apart
From the 1980s, deregulation, globalization and the spread of non-union firms raised competition.
Firms found they could avoid protective laws by subcontracting and leasing workers, investors demanded higher returns, and reengineering gave managers new tools.
In one survey of 531 large companies, three quarters had downsized in 1992. The redesigned firm has fewer permanent employees, a flatter hierarchy and pay tied to performance, and employees identify more with their occupation than with their employer.
Mass layoffs in historical perspective
A 2022 Bloomberg column places the tech layoffs of that year, including half of Twitter's staff and 11,000 jobs at Meta, in this history.
It reports that studies since the 1990s rarely found the promised gains and that the damage is greatest in firms whose main asset is their people.
How labor law shaped restructuring
The Cappelli reading adds a legal twist.
The main US labor statutes were written around a 1930s picture of the workplace: the Fair Labor Standards Act of 1938 divides workers into exempt and nonexempt groups for overtime, and the National Labor Relations Act, as amended in 1947, leaves supervisors without the right to union representation. Most of these laws do not treat leased or truly temporary workers as the host firm's employees.
Moving work to agencies or redesigning jobs could therefore take workers outside the law's protection.
What this chapter covers
- 01
The foreman era
- 02
Internal labor markets and job ladders
- 03
Primary and secondary labor markets
- 04
Pressures to restructure
- 05
The redesigned, flatter firm
- 06
Contingent work and mass layoffs
Worked example · free
Sort a job offer into the old or new system
- 2Parent's job: hiring at the bottom of a job ladder and promotion from within mark an internal labor market.
- 2Graduate's job: agency employment is leased or contingent work, outside the host firm's own workforce.
- 1Pay tied to team targets reflects the restructured firm's contingent compensation.
- 1Link the shift to the 1980s pressures: competition, investor demands and avoiding legal obligations.
Key terms
- Job Ladder
- A sequence of positions inside one firm through which employees are promoted from entry-level jobs.
- Secondary Labor Market
- The segment of jobs with lower pay, less security and few promotion routes, outside corporate career systems.
- Reengineering
- The systematic redesign of specific work processes, usually white-collar ones, to cut cost and time.
- Firm-Specific Human Capital
- Skills learned on the job that are valuable mainly to the employer that taught them.
Corporations and Work in the New Economy FAQ
What was an internal labor market?
It was the career system of large US firms: people were hired into entry jobs, promoted from within, trained on the job and paid by job title and seniority, which gave many workers careers rather than a series of jobs.
Why did corporations restructure in the 1980s and 1990s?
The Week 3 materials point to tougher competition from deregulation and globalization, investor pressure for returns, new management techniques, and the chance to avoid protective laws through subcontracting and leased workers.
Do mass layoffs usually raise profits?
The Bloomberg column says the research is discouraging: in a 1991 survey fewer than a third of executives saw profits rise as expected, and surviving employees tend to become more cautious and less productive.
Why were women and minorities often outside the old career system?
The Week 3 slides say they were less often admitted to the primary market of job ladders and security, and more often worked in the secondary market, with lower pay and less protection, so the system's benefits were unevenly shared.
Exam move
Draw a two-column table of the old and new employment systems under hiring, hierarchy, security, pay and loyalty, and learn one cause of the shift for each row. Then practise a four-sentence evaluation of a layoff announcement using two dated findings from the Bloomberg column.
