Boundary of Internal Labor Markets: Do We Have the Empirical Facts Right?

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This paper analyzes the internal labor market and its effect on workers' wages using an extensive Swedish dataset that includes employee and occupation characteristics and information about wages and work hours. Contrary to the conventional assumption, we find that there are no firm-based "ports of entry" in low level jobs. On the contrary, firms prefer to hire workers with relevant occupational experience at all ranks, even if that requires hiring from outside the firm. This effect is most pronounced at higher ranks and for smaller firms. Wage regressions reinforce the message, showing that overall experience and tenure in occupation have significant effects on wages but that firm tenure does not. In occupations where the occupation-specific port of entry is most pronounced, tenure in occupation has a larger effect on wages.

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