ABSTRACT
This chapter is devoted to an examination of the forces responsible for the existence of internal labor markets and for the determination of the rules which govern within them. Internal labor markets appear to be generated by a series of factors not envisioned in conventional economic theory: (1) skill specificity, (2) on-the-job training, and (3) customary law. These factors are defined and developed in the first section of the chapter. In the second section, they are combined with the economic forces recognized in conventional theory to develop an explanation of how internal markets arise and evolve over time. The analysis of this section abstracts from the behavior of managerial and trade union organizations and from actual historical events. These institutional and historical complexities are introduced in the third and fourth sections respectively. The final section of the chapter summarizes the discussion.
