Human Resource Management And The Labour Market Introduction HR Management


This chapter is concerned with how we think about the labour market and the place of employing organisations within it. Traditionally, those within the dominant paradigm in economics – known as neoclassical economics – have argued that competition means that market forces leave individual firms little scope for choice. High-cost firms eventually go out of business and the competitive search for lower costs means that firms tend to converge on the most efficient methods of production.

This suggests that firms operating in the same industry or product market will employ the same technologies and types of labour, operate the same rates of pay and have pretty much the same employment/HRM policies. However, in recent years the growth of corporate strategy and HRM as bodies of ideas has encouraged scholars to focus on the ability of managers of organisations to exercise ‘strategic choice’ over a range of decisions, including employment matters.

The implication of this is that employers’ decisions are not just determined by external market forces. Instead, employers have a certain amount of freedom to interpret their external environment and choose from a range of possible responses in a search for competitive advantage. This is an important issue for students of HRM in the light of its claim to be a strategic approach to the management of labour and thus superior to‘traditional’ personnel and industrial relations management.

One problem with the literature is that it often appears to be inconsistent. On the one hand it argues for the ability of managers to make strategic choices while on the other it tells us that contemporary developments such as the increased use of ‘flexible’ forms of employment are the inevitable result of changes in technology and markets. In order to avoid this inconsistency we need to ask how market environments might simultaneously create and constrain the scope for strategic choice in HRM.

The specific focus of this chapter is the labour market. The chapter is divided into four main sections. In the first we consider various ideas about the nature of the labour market and employment systems. In the second we explore the factors that influence the type of employment system that an organization operates. The third section discusses how and why employment has changed over the past 20 years and the final part of the chapter discusses some ideas about the future of employment systems and their implications for HRM.

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