Segmented labour markets

Segregated labour markets

Nature

Migration is a prominent feature on the debate surrounding segmented labour markets. In most neo-classical models, migration is seen as an equilibrating factor as individuals respond rationally to the comparative incentives of different sectors. On the other hand, migrants are often seen as an identifiable group in the labour market who are either discriminated against or favoured. This discrimination is one factor leading to the emergence of segmented labour markets. Migration pattern itself may raise barriers to competitive forces within urban labour markets - by limiting entry into particular occupations, restricting access to training and influencing wage determination - and hence result in segmentation.

Background

The significance of segmented labour markets emerged in the 1970s, as researchers observed persistent disparities in wages, job security, and mobility across different workforce groups worldwide. Initial studies in industrialized nations highlighted structural divisions between primary and secondary labour sectors, prompting further investigation into similar patterns in developing economies. Over time, segmented labour markets have been increasingly recognized as a global phenomenon, shaping debates on inequality, social mobility, and the effectiveness of employment policies.

Incidence

Segmented labour markets are a persistent feature in both developed and developing economies, affecting millions of workers globally. This phenomenon is evident in the stark division between formal and informal employment, as well as between permanent and temporary contracts, often resulting in unequal access to job security, wages, and social protections. The prevalence of segmented labour markets contributes to entrenched social and economic inequalities, disproportionately impacting women, migrants, and young workers across diverse regions.
In 2022, India’s gig economy highlighted the incidence of segmented labour markets, with app-based delivery workers facing precarious conditions, limited legal protections, and wage disparities compared to formal sector employees.

Claim

Segmented labour markets are a critical and urgent problem that perpetuate inequality, limit social mobility, and undermine economic growth. By trapping workers in low-wage, insecure jobs with little opportunity for advancement, these divisions entrench poverty and discrimination. Ignoring this issue allows exploitation to flourish and wastes human potential. Addressing segmented labour markets is not just an economic necessity—it is a moral imperative for any society that values fairness and opportunity.

Counter-claim

Segmented labour markets are vastly overstated as a problem. In reality, they simply reflect the natural diversity of skills, preferences, and industries within an economy. Attempting to “fix” segmentation risks unnecessary interference and inefficiency. Workers and employers freely choose arrangements that suit their needs. There are far more pressing economic issues than obsessing over market segmentation, which is neither inherently unjust nor detrimental to overall prosperity. Let markets function without needless alarmism.