Competitive and Segmented Labour Markets and Exclusion from Retirement Income

Segmented labour market theory rests on two central tenets. The first is that it is meaningful to distinguish between primary labour markets providing good jobs with high wages and stable employment and secondary labour markets providing bad jobs with low pay and unstable employment. The second is that jobs in primary labour markets are rationed, with substantial barriers to entry from secondary labour markets. The rationing hypothesis cannot be tested for Ireland with the data available, but here we test the hypothesis that wage determination differs across sectors, using data from a 1987 ESRI household survey. Two formulations of the segmented labour market model are tested, one distinguishing only primary and secondary sectors and the other distinguishing four sectors employed in recent US research by Gordon. Estimating standard earnings functions for both variants suggests that returns to education are lower in secondary markets, as predicted by segmentation theory, but contrary to the theory's predictions returns to work experience do not differ across sectors. There may be a less clear-cut divide between sectors in European countries than in the USA, partly because of the role of trade unions. The policy implications of adopting a segmented labour market perspective are markedly different from those of human capital theory on some central issues of labour market policy, so further investigation of that perspective appears warranted.