This document discusses the labour market context of human resource management. It defines internal and external labour markets and how changing conditions are impacting HRM practices. Labour market supply and demand are shaped by various economic, social, and policy factors. The economy has shifted to becoming more service-oriented and knowledge-intensive. Organizations have responded by increasing flexibility through practices like outsourcing, temporary workers, and multi-skilling. However, flexible working arrangements can have mixed impacts, benefiting some groups more than others.

1. The Labour Market Context of
HRM
Human Resource Management

2. Session Objectives
• To define internal and external labour markets
• To identify changing labour market conditions
• To outline how labour market trends are
impacting upon HRM practice
• To outline the various ways that firms can
respond to different labour market conditions
• To outline forms of employment flexibility

3. What are Labour Markets?
• Mechanism through which human labour is
bought and sold as a commodity
• Means by which labour demand (the number
and type of available jobs) is matched with
labour supply (the number and type of
available workers)
• Nature of interaction between organisation
and labour markets reflects choice of ‘make’
or ‘buy’ strategies for employee resourcing

4. The internal labour market
• An organisation’s internal supply or stock of labour
• Mechanism for attribution of work roles
• Device for managerial control over the workforce
through stratification, division and the detailed
allocation of responsibility
• ‘Form’ determined by HR practices, contextual
factors and organisational characteristics
• Potential source of ‘positive’ employment experience
• Erosion of ‘strong’ internal labour markets?

5. The external labour market
• External supply of labour; the stock of available labour
• Segmented labour markets – Geography, skills,
educational level, etc.
• Labour market ‘power’ through legitimate and
illegitimate means
• Shaped by a range of processes which can be both
planned and directed or largely uncontrolled and
unpredictable
• Reflexive relationship between the supply and demand
for labour

6. Labour Market Supply and Demand
Labour market supply Labour market demand
 Changing societal attitudes to work
and education
 Economic conditions (regional,
national and international)
 Changing demography
 Government policy – Both national
and international (e.g. European
Union)
o Employment regulation
o Level and target of investment
in education and training
o Industrial policy
o Wider social policy
 Changes to the external business
environment
 Changes in the internal business
environment
 Changing communications and
production technologies
 Changes in the political context
 Economic restructuring
 Changing skills requirement
 Regional, national and
international economic conditions
– Inflation, level of unemployment
and interest rates

7. Globalisation of labour markets?
• Globalisation creating significant
interconnectedness of national and regional
labour markets
• Changes to the availability of labour in one
part of the world impact on the relative
demand for labour in another
• Developing international division of labour
• Alters the dynamic between labour supply and
demand

8. Economic Change and the Labour
Market
• Service-dominated economy
• Advent of ‘post-industrialism’/knowledge-intensive economy
• ‘Type of economically advanced social order in which the
centrally important resource is knowledge, service work has
largely replaced manufacturing employment and knowledge-
based occupations play a privileged role’. (Watson, 2008: 21)
• Economic complexity and uncertainty
• Bi-skill labour market changes: ‘Mcjobs’ and ‘iMac jobs’
• Importance of ‘thinking’ skills and ‘person to person’ skills

9. The restructuring of internal labour markets
The flexibility of organisational structure
• Contested argument that rigid bureaucratic
organisational forms are inadequately adaptable
• Replaced with ‘post-bureaucratic forms that are leaner,
flatter and consequently more responsive, flexible and
focused’ (Morris, 2004: 264).
• Downsizing, rightsizing, delayering, restructuring,
business process re-engineering, project working, etc.
• Implications for work in terms of job content, employee
motivation, job security and organisational commitment

10. The restructuring of internal labour markets
The flexibility of labour
• Workforce flexibility and adaptability key to an organisation’s
ability to respond to change
• Flexibility of labour is reflected in an employers’ ability to:
– Recruit or dispose of labour as required;
– Alter labour costs in line with market needs;
– Allocate labour efficiently within the firm;
– Fix working hours to suit business requirements (Reilly,
1998).
• Cost-minimisation (‘flexploitation’) or quality enhancement?
• Mutual gains?

11. Approaches to labour flexibility
• Functional Flexibility
• Financial (or wage) flexibility
• Numerical Flexibility
• Temporal flexibility
• Spatial (or locational) Flexibility

12. Employer reasons given for introducing flexible
working practices (IDS, 2006)
• To improve staff retention
• To enhance reputation as an
‘employer of choice’
• In response to requests from staff
• In response to Government
legislation
• To improve work–life balance
• To improve staff morale
• To attract job applicants/widen
recruitment pool
• To provide adequate cover for
extended opening hours
• To meet seasonal fluctuations in the
market
• To stay competitive in the market
• To improve productivity
• To encourage diversity
• To reduce sickness absence/help
those returning from long-term sick
leave
• To limit overtime costs
• To encourage loyalty
• To address environmental/travel-to-
work issues
• To reduce property costs
• To enable a young workforce to
pursue their personal interests

13. Atkinson’s (1984) Flexible Firm
Core group
Primary (internal) labour
market
Functional flexibility
Outsourcing
Agency
workers
Sub-
contracting
First peripheral group
Secondary (internal)
labour market
Numerical and functional
flexibility
Second peripheral group
Numerical and functional
flexibility e.g. part-time
workers, job-sharing and
temporary workers
Self-employment

14. Implications of flexible working
practices
• ‘Employee-friendly’ and ‘employee-unfriendly’
variants
• ‘Casualisation’ of employment at odds with
importance of employee commitment to
performance
• Non-standard employment (part-time, temporary
and fixed-term) increases workers’ exposure to
‘bad job’ characteristics
• Multi-skilling often means multi-tasking

15. Implications of flexible working
practices
• Some groups are more likely to benefit than
others from flexible working arrangements
– Managerial, professional and clerical workers
• For manual and lower-skilled workers, flexibility
often means insecurity and unpredictability
• Flexible working can reinforce patterns of social
exclusion
• Ethical debate regarding flexible working is micro
version of wider political dilemma

16. Summary points
• Labour markets are highly fluid and unpredictable
• The supply of and demand for labour is subject to a range
of pressures which form the conditions under which
organisations manage their workforce
• Knowledge economy has become a useful shorthand
means of describing a set of processes shaping the labour
market context of contemporary firms.
• Bi-skill labour market changes – ‘Mcjobs’ and ‘iMac jobs’
• Increased emphasis on organisational and labour flexibility
– Variable impact on workers

17. References
Atkinson, J. (1984) Manpower strategies for the flexible
organisation, Personnel Management, August .
Income Data Services (2006) Survey of flexible working practices,
HR Studies Update 834, November, London: IDS.
Morris, J. (2004) The future of work: Organisational and
international perspectives, International Journal of Human
Resource Management, 15(2): 263–275.
Reilly, P. A. (1998) Balancing Flexibility – Meeting the Interests of
Employer and Employee, European Journal of Work and
Organisational Psychology, 7(1): 7–22.
Watson, T. J. (2008) Sociology, Work and Industry, (5th edn),
London: Routledge.