GUIDE to Mark Granovetter, The Sociological and Economic Approaches to Labor Market Analysis: A Social Structural View

In this article Granovetter criticizes economic models of the labor market and offers a social structural view. It is important to understand the arguments he counters.

First he shows how the appraisal of labor mobility/turnover shifted over time. Why did labor economists think labor mobility was good? Why did others thought it was bad?

Most recent theories of the labor market tell an 'adaptive story.' What is this story?

Then G. talks about individual propensity models of the labor market. What is a propensity? Why is the word misleading?

There is an important distinction between 'heterogeneity' and 'state dependence' [this is a synonym for path dependence]. Both are designed to explain why some people move in and out of jobs more than others. What is the difference between the two?

G. suggests a sociological interpretation of mobility history. What is this explanation? What do people acquire while moving from one job to the other?

What explains long job tenures according to G.? How do other, economic, theories explain long job tenures?

In the next section he challenges two theories of worker loyalty: 1, implicit contracts, and 2. efficiency wages. The first assumes that employer and employee make an 'invisible handshake,' a pact where the employer offers continuity of work, wage and work conditions, and the worker offers discipline and loyalty. The second, the efficiency wage argument, states that supervising your workers is usually very costly or difficult. If wages were the market rate for labor, there were no unemployment and workers would be immediately hired by someone else as soon as you fire them for bad work. To keep them in line, you pay your workers a bit more than their market price. This creates unemployment, which, in turn, scares the worker into working well, because they can end up without a job.

What are the two aspects of G.'s criticism ? According to G., how are people really hired? How are wages really set?

Then, G. turns to internal labor market theories. What is 'internal labor market'? Imagine a firm, which needs to fill a supervisory position. They either hire someone new, from the outside, or they promote a worker of their own internally, ie. they fill the position either from the external or from the internal labor market.

What are some of the explanations of the use of internal promotions in the economic literature? What is G.'s alternative explanation?

G. points out that the literature makes two contradictory claims about internal labor markets: 1. they are efficient, 2. they are self-perpetuating. Why are these two claims contradictory?

He makes references to Pangloss. Who was Pangloss and why is he mentioned?

How did you get your first job? Was there any personal contact involved? Did you ever get promoted? Did your boss consider things other than your productivity? Can you apply heterogeneity or path dependence to your own story?