The aim of this paper is to analyse the interrelations among internal labour markets, the role of the firm in the development of skills, training and systems of payment of employees. The key idea of this contribution is that wage determination is always related to the allocative function of labour, skills and capabilities in internal labour market. A distinction between the notions of skill and capability is essential for the purpose of this paper. This analysis is based on two different theoretical approaches. First of all, the paper draws on the competence-based theory of the firm, elaborated in an evolutionary approach to economic analysis (Hodgson, 1998). Secondly, the paper is based on the institutionalist analysis of internal labour market developed by Doeringer and Piore. Particularly, the paper investigates the role of internal labour markets in the process of skill formation.
This paper supports the idea that internal labour markets do not only allocate labour, but also skills and capabilities. The paper develops a taxonomy of firms, which are classified according to characteristics of both training provided and tasks to perform. Payment system is embedded and interacts with both the system of skills formation and features of tasks. Remuneration system fits in labour organisation and vice versa, giving rise to a specific institutional equilibrium, whose stability cannot be taken for given. The final section points out the
features of these institutional equilibria, in terms of both labour organisation and compensation system.