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Gregory Bird

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Labour Market Segmentation Theory:
Definition: It is defined as it consists of various sub-groups which have little or no crossover
capability. It works in terms of demand and supply concept.It is higly influenced by
politicaleconomic forces which encourage the division of the labor market into separate
segments. The demand depends on the economy and the labour market. The supply side of
labour is responding to the demand for labour in the labour market. This demand is strongly
related to investments in human capital. Demand & Supply of labour must be strongly related to
one other, else there is a high mismatch in politicaleconomic environment. For example: The
high rate of unemployment in Sri Lanka. Such mismatch is highly influenced by private sector &
public sector.
VHFWRUHPSOR\PHQWDQGZDJHSROLFLHV´ZKLFKZDVdeveloped by Bowen (1990) and Dickens and
Lang (1996) & also suggested by Glewwe (1987) clearly says that public sector has influence on
the labour market & its demand ±supply graph. They argue that public sector workers have a
lower wage than those in the private sector.Such Scenario are clearly visible in developing
countries. Today, private sector are giving greater stability in terms of Job security, attractive
benefits(Health Insurance,Pension,Travelling Allowances etc) not only to employee but of its
entire family & above all the good work environment unlike public sector. On the other end,
Although Public sector provides better benefits to the employee but due to lack of good working
HQYLURQPHQWIUHVKJUDGXDWHVGRQt want to go to public sector. This causes a mismatch between
expectations & demand ±supply (high demand in public sector vs more supply in private sector)
E.g. Most of the developing Countries Labor market is facing such issues
Political vs Economics Aspect
Political econmics aspect influences the labor marker very much. For example: In 1994, French
government tried to lower the minimum wage for young workers which was unacceptable &
finally withrew the proposal. In 1995, a French presidential candidate put on his platform an
increase in the minimum wage. The Swidish government has lost the election in 1994 because it
had lowered the unemployment benefit replacement ratio.
Based on above examples, it is clearly visible that political instability drives the economy
towards equilibrium with a higher labour market.
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