The basic view of labor market segmentation theory

The basic viewpoints of labor market segmentation theory:

Wage Determination Mechanism

The traditional labor market theory believes that the wage is determined by the marginal productivity of labor, and the demand curve of labor is the marginal output curve of labor. The labor market segmentation theory, on the other hand, considers that the factors determining wages are complex, and thus explains wage differentials and wage discrimination in the real economy. The dual structure theory holds that employers in the primary labor market are large firms that mainly produce capital-intensive products and are more likely to form an internal labor market, where workers' wages are not determined by marginal productivity but by the ladder position of the workers in their internal labor market, and they can receive higher wages than in the market, while employers in the secondary market consist of many small and medium-sized enterprises (SMEs), where the demand for their products fluctuates frequently. Enterprises are not interested in developing the internal labor market, and wages are determined by the supply and demand for labor in the market, tending to a fixed level.

The role of human capital investment

Traditional theory suggests that human capital plays an important role in the determination of wages, and that different amounts of human capital investment have different marginal output and different wages. But the reality is not so, segmentation theory of human capital investment to make a new explanation, that human capital investment is only a signal, play a screening function, the labor force to receive education is only to enter the first level of the market and provide employers with a signal of the training potential of the large, and those who receive less education is considered low training potential, can only occupy the end of the labor ladder or stay in the second level of the labor market.

Labor Force Quality

Labor market segmentation theory suggests that secondary market workers develop behavioral traits such as laziness, lack of a sense of time, not easy to work with, and disrespectfulness, which are incompatible with primary market requirements. Therefore, people employed in the secondary market will find it difficult to enter the primary market, even if they find ways to improve their educational attainment.