The concept of labour segmentation

The concept of labour segmentation originated from the theory of segmentation, which was initiated by a group of economists to study labour force problems of the disadvantaged who were subjected to persistent inequalities and discontinuities in labour market competition in the United States. Although segmentation theory originated in the United States in the early 1960s, its postulation bears much resemblance not only to the employment of migrant workers but is also generally applicable to the employment structure produced by the practice of governments and employing companies of different economic sectors in other countries (see Chapters Four, Six and Seven). In the United States, segmentation theory has been used to suggest that the labour market comprises two sectors: primary and secondary. Piore (1970), the first of duality segmentationists, proposed:

"The primary market offers jobs which possess several of the following traits: high wages, good working conditions, employment stability and job security, equity and due process in the administration of work rules, and chances for advancement. The secondary sector, has jobs which relative to those in the primary sector, are decidedly less attractive, They tend to involve low wages, poor working conditions, considerable variability in employment and harsh and often arbitrary discipline, and little opportunity to advance. The poor are confined to the secondary market". Piore (1970, cited in McNabb and Ryan, 1990: 153).

Specifically, the segmented market studies stemmed from the notion that earning differentials and unemployment levels with respect to race, age, sex and social class were the consequence of labour market processes (Edwards, 1973). Recent studies, however, focus on segmentation between males and females, young and relatively older employees, such as in the relocation of men more than women under internal labour market (ILM), and younger than older professional employees within firms (Salt, 1990). Gordon (1995) also related the differential geography of male and female labour migration to segmentation theory, and suggested that females be labelled as being less stable. In the present study, the segmentation of Brunei’s employment structure is not so much based on age and sex but more on residential status (local versus foreign labour) and social class/ethnic background (Malays versus non-Malays), as well as foreign workers of different nationalities. Thus these are dual and multiple segmentations

which are not only the outcome of labour market processes but also the result of government intervention because of the national interest and hence for political goals. This study sees the prevailing segmentation in Brunei (dual and multiple) as the result of mechanisms which have been activated by players in the labour market (principally the government, employers and workers). Therefore, analysis of segmentation for Brunei calls for an understanding of the processes that bring about both the dual and multiple segmentation of the country’s employment structure (Section 2.4).

The seemingly simple dual dichotomy between dominant and subordinate industrial sectors, and corresponding division between privileged and underprivileged employment, has long been superseded by notions of a much more complex structure between industry and employment. Whilst there is now a multiplicity of literature on labour market segmentation theory, its most important feature is that it offers an analytical framework with which to study and/or assess the various structures of the workforce in different geographic areas under different socio­ economic and demographic characteristics.

However, there is no general unanimity in either the definition or the concept of segmentation as it applies to labour markets generally. Whilst also serving as a modest contribution to the overall understanding of segmentation of the labour market, the main intention here is to come up with a working definition of segmentation as it applies to the circumstances of Brunei.

It must be emphasized from the onset that labour market segmentation theory has a longer historical tradition (Fine, 1990), influenced by American institutionalists who postulated the notion of dual-monopoly, competitive, industrial structure (Averitt, 1968). Earlier references to labour market segmentation theory can be traced to Adam Smith (1846) in Chapters Eight and Ten of Book 1 of the Wealth of Nations where he considered that wages were higher or lower according to the advantages and disadvantages of employment and the greater or lesser the skills required (cited in Fine, 1990:2). More recently, labour

market segmentation theory has been developed by Mill (1929), Caimes (1967) and Becker (1957). The last argued that the opportunity to acquire knowledge and skills is a segmented process that has led to inequalities in remunerating employees. Such a process is visible in Brunei’s largest private company (Brunei Shell Petroleum Companies) in terms of segmentation of employment structure by ethnic groups (Chapters Six and Seven).

The concept of segmentation was subsequently simplified by Piore (1970). In his original exposition he saw the labour market as having two distinct sectors. The first is the primary sector which offers jobs with relatively higher wages, good working conditions, chances of advancement within a firm, large remuneration for acquiring education and training, and better prospect of employment stability. By contrast, the secondary sector is characterized by jobs that tend to be low-paying, have poorer working conditions and with just a little chance of advancement. While he had no doubt about the duality of the basic labour market, Piore argued that the primary sector is further compartmentalized into an upper and lower tier. His opinion was that the modern origins of labour market segmentation theory were rooted in a desire to explain the poor social and economic conditions of labour. In fact, many (for example, Piore, 1971 and Fine, 1990) believed labour market segmentation theory was originally a response to the urban riots in black ghettos in US cities and hoped to provide explanations in terms of systematic economic deprivation as it affects employment. Indeed, according to Reich et al (1973) labour market segmentation is a historical process whereby political-economic forces encourage the division of the labour market into separate markets or segments, distinguished by different labour market characteristics and behaviour rules.

Piore’s (1970) dualistic segmentation has been described by others in similar terms, characterized by the existence of formal and informal sectors (ILO, 1972), good and bad jobs (Wial, 1988), and static and progressive jobs (Standing, 1989). Essentially, the two labour markets functions independently of each other; firms in the primary sector possess some market power, and therefore insulate themselves from competition, while those in

the secondary sector confront fierce competition (Anker, 1997). Ryan (1981) confirmed the existence of variability in the meaning of the concept and interrelationships of segmentation and defined it as the process of compartmentalization and isolation of different groups of participants in the labour markets. This means that there is a differentiation of economic opportunities and rewards among objectively comparable people independent of their desires. Accordingly, Ryan identified two levels of segmentation: one that occurs before entry into the labour market (pre-market segmentation) and which occurs while active in the market (in-market segmentation). In the pre-market segmentation, there is a clear differentiation of opportunities to enhance one’s productive potential through school and formal training before getting into employment. On the other hand, the in-market segmentation denotes a subsequent and further differentiation of opportunities within the market to bring about one’s productive potential through on-the-job training. Such a differentiation of opportunities is seen in this study as actually constituting a process of segmentation. This is because it eventually sorts employees into eligible and non-eligible groups, such as for job promotion and training, and consequently for receiving rewards either in monetary terms and/or promotion. As will be seen later in the study (Chapter Four, Six, Seven and Eight), both pre-market and in-market segmentation processes, resulting in a dual segmentation, are evidenced in Brunei’s education system and employment policies, particularly with respect to the differential ethnic background of the country’s citizens.

However, Tarling (1987) argued further that the dualistic approach to segmentation is not crucial and maintained that it is better to contrast the phenomenon of discontinuity between segments of the labour market against continuous differentiation than it is to continue to debate the exact number of segments. According to him, what distinguishes segmentation from a mere division is that each segment functions according to different rules and, consequently, wages are different even if the productive qualities of the labour force are the same. He concluded that segmentation involves not only the labour market per se, but that it can also equally result from the historical development of the productive

structures. This means that segmentation cannot just be attributed to the resultant effect of an imperfect labour market. Rather, it can be assumed that any labour market is essentially imperfect and so cannot and has never obeyed the dictates of traditional economic theory of the market.

Generally, the notion that there are labour market segments is not new. What may have emerged, according to Fine (1990), is partly a response to empirical developments and partly a response to theoretical developments: how are these segments made and who fills them? Indeed, he postulated that education is a means of socializing potential workers into pre-ordained, usually degrading and unfulfilling jobs. He was convinced that there is little causal relation between education and employment except in so far as social class ensures favour and disfavour for each worker from another. Fine’s view regarding the discriminatory situation between social classes is visible in BSPC where one local group (Malays) is favoured against the others, indicating the existence of labour market segmentation. Indeed, education is not the only important quality for employees to secure employment and promotion. In Brunei context (including BSPC), they also must be of the favoured ethnic group members, which in Malay (see Chapter Six).

Overall, labour market segmentation is not necessarily dualistic in nature, despite such a common attribution of labour market segmentation theory (Dickens and Lang, 1993). To assume it as such would be abstracting it from the determinant effects of institutions, such as governments and employing companies. The policies, rules and regulations of these bodies can bring about multiple segmentations of the labour market and employment structure, as will be seen in the empirical evidence provided in the following chapters. It will also be abundantly clear (see Chapters Four, Six and Seven) that segmentation develops as a response to different development stages, affecting segmentation of workers by occupation (structural) and distribution by economic sectors (sectoral) through the

demand side (especially in relation to size and types^ of company as well as qualities of labour required) and supply (different groups of workers). Segmentation is also the consequence of changes in the nature of labour demand and supply of foreign workers and government intervention in the labour market (particularly regarding labour migration), as well as the industrial activities of multinational corporations during the development process. It is this context of segmentation that is used as the basis of this study, including devising a model for demonstrating how the mechanisms work in creating and maintaining the segmented labour market and employment structure in Brunei (Chapter Three). Since segmentation of employment structure is seen here to be the outcome of links between development and labour migration, it is therefore appropriate to give an overview first of the relationship between development and labour migration.