Chapter Learning Objectives

  • Understand the general characteristics of internal labor markets (ILMs).
  • Recognize the particular facts that the typical careers exhibit a remarkable durability, earnings depend on individual performance and hierarchical concerns, and the ILM is not well shielded from the external labor market (ELM).
  • Understand how the long-term nature of careers facilitate investments in human capital, information, reputations.
  • Explain the fundamentals of the rat race.
  • Recognize the importance of reputational investments in explaining why agents may be prepared to trust relational contracts, which include nonenforceable elements.
  • Understand the economics of the Peter principle.
  • Distinguish a firm’s employees from its independent contractors.