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How Do Changes in an Organization's Labor Markets Drive Changes in Its HR Policies and Practices

This report utilizes the work of Atkinson (1984) and Pilbeam & Corbridge (2010) to present a discussion regarding how changes in an organization's labor markets drive changes in its Human Resource (HR) policies and practices. Cite this item: S. Shafqat. (2021). How Changes in an Organization's Labor Markets Drive Changes in Its HR Policies and Practices. Risk Concern. Accessible at: link.


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Organizations have two labor markets to draw from: The Internal labor market and the external labor market. When an organization recruits from the external labor market, it brings in new people to the company. On the other hand, when an organization recruits from the internal labor market, it changes the job of someone who already works for the organization; for example, a manager may be designated as a senior manager through internal recruitment.

Labor turnover rate is one of the most important measures of change, as it states the frequency at which employees are leaving an organization. It plays a critical role in HRM, as it allows strategic HRM planners to recognize parts of the business that have a low or high turnover. A high turnover rate in certain parts of the business implies that employees are motivated to leave, and it is important to decipher why this may be; vice versa, a low turnover rate indicates that employees are not motivated to quit. Factors causing demotivation may be environmental or unrelated to the organization and its workings, i.e., aspects personal to the employee(s) in question.

Quantitatively, managers can use cohort analysis, labor turnover rate, workforce profiles, etcetera. Qualitatively, succession planning and skill audits are the tools that HRM can use to understand the changing behaviors and trends of employees. The external labor market is made up of the local labor market, national or regional labor market, and the professional labor market. Understanding the external labor market and its changes is also very important for evaluating changing trends in the labor markets. Studying job ads, benchmarking, and engaging with professional networks are ways in which HRM can analyze the external labor market (Pilbeam & Corbridge, 2010).

These trends may also have cyclical patterns, as business cycle theories assert. Labor supply may be scarce in an economic boom, but not so much in an economic downturn, for example. Nonetheless, cyclical or otherwise, the management and HR team should strategize in this regard to stay ahead of the curve.

The two labor markets (internal and external) are dynamic and constantly evolving. Constant changes in these markets require HRM policies and practices to coevolve with these changes. There have been several significant changes in these labor markets, such as changing demographics of the population, increased competition, social change, increased globalization, deregulation of markets, technological change, search for efficiency, and escalating aspirations by customers and employees. HR and management must understand the nuances of these factors.

To coevolve with these changes, HRM strategists try to achieve differentiation for their firm and greater flexibility at work. Although the structure of an organization and the design of organizational functionality dictate the assembly of job structures and how they operate at different scales, they are still part of the overall process. Therefore, to coevolve with changing labor markets, HRM strategists work towards organizational flexibility to achieve job flexibility, as it is often argued that organizational flexibility and job flexibility are interrelated (Pilbeam & Corbridge, 2010).

Of course, an organization that is considered rigid in its functionality, must first work towards consequential cultural change, if it is to move towards a higher level of flexibility. For example, organizations aspiring to become more agile are first encouraged to focus on a change towards an agile culture (PMI, 2017).

Organizational flexibility, which is required for changing labor markets, is achieved by responsiveness: organizations' capacity to deal with short-term unexpected crises and events, and agility, which is the organization's capacity to adapt to long-term persistent changes in the business environment successfully. Organizational flexibility is a requirement for achieving labor flexibility and flexible working practices.

These changes help improve the adaptability to the market changes and are a very important constituent of changes in HRM policies and practices. Here again, it must be stated that the pursuit of flexibility starts with a shift in the culture of the firm and changing the mindset that people carry to work.

Organizations are also moving towards, and becoming more accepting of, flexible working patterns such as temporary work, part-time work, remote working, annual hours contract, and job sharing to achieve greater work flexibility for higher satisfaction and work-life balance of more demanding labor and to achieve higher productivity. Nonetheless, it must be added that the recent pandemic and the restrictions it imposed on work have increased to the pace of this move.

On the other hand, Atkinson's (1984) model of the flexible firm, which asserts "flexible staffing arrangements to match the workforce to the current needs of the business," has also been adopted by the HRM strategists. This model is designed to achieve labor flexibility. For example, Functional flexibility, getting rid of 'bureaucratic distinctions' between different job roles, and numerical flexibility, adjusting the number of employees employed to match the amount of work that has to be done.

These are the different policies and practices that are used to address labor market changes by HRM departments of firms as these markets evolve and change.


Atkinson, J. (1984) 'Manpower strategies for flexible organizations,' Personnel Management.

Corbridge, S. P. (2010). Chapter 1 : people resourcing: the changing world of work contemporary human resource management. In People resourcing and talent planning: HRM in practice. (Pearson, 2010; 4th edition).

Project Management Institute (2017) Agile Practice Guide: PMI.


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