External labour market

Updated: Aug 20, 2021

The system by which recruitment for senior appointments in an organization is mainly by open competition. It is contrasted with an internal labour market, in which senior posts are filled mainly by promoting existing employees in lower-grade jobs. The main merits of an external labour market are that open competition provides a wider choice for senior appointments, and that outsiders may bring new ideas to an organization. The main merits of internal labour markets are that a firm is likely to know more about the strengths and weaknesses of existing employees than outsiders, and that a reputation for internal promotion as its preferred strategy may assist in recruitment and retention of staff.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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