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Insider Power, Wage Discrimination and Fairness

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Author Info
Fehr, Ernst
Kirchsteiger, Georg

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Abstract

The exercise of insider power is frequently considered as a major cause of involuntary unemployment. The authors show that under standard assumptions--insiders are selfish and they need not fear the loss of their job--insider power does not cause unemployment but leads to the introduction of a market-clearing, two-tier wage system. Yet, while insider power is a common phenomenon, two-tier systems are rarely observed. To explain this fact, the authors introduce interdependent preferences. They show that, if entrants exhibit a preference for fairness, the presence of insider power gives rise to an efficiency wage effect that may prevent the introduction of market-clearing, two-tier systems. Copyright 1994 by Royal Economic Society.

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Publisher Info
Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 104 (1994)
Issue (Month): 424 (May)
Pages: 571-83
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Handle: RePEc:ecj:econjl:v:104:y:1994:i:424:p:571-83

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Shapiro, Carl & Stiglitz, Joseph E, 1984. "Equilibrium Unemployment as a Worker Discipline Device," American Economic Review, American Economic Association, vol. 74(3), pages 433-44, June. [Downloadable!] (restricted)
  2. Akerlof, George A & Yellen, Janet L, 1988. "Fairness and Unemployment," American Economic Review, American Economic Association, vol. 78(2), pages 44-49, May. [Downloadable!] (restricted)
  3. Akerlof, George A & Yellen, Janet L, 1990. "The Fair Wage-Effort Hypothesis and Unemployment," The Quarterly Journal of Economics, MIT Press, vol. 105(2), pages 255-83, May. [Downloadable!] (restricted)
  4. Fehr, Ernst & Kirchsteiger, George & Riedl, Arno, 1993. "Does Fairness Prevent Market Clearing? An Experimental Investigation," The Quarterly Journal of Economics, MIT Press, vol. 108(2), pages 437-59, May. [Downloadable!] (restricted)
  5. Carruth, Alan A & Oswald, Andrew J, 1987. "On Union Preferences and Labour Market Models: Insiders and Outsi ders," Economic Journal, Royal Economic Society, vol. 97(386), pages 431-45, June. [Downloadable!] (restricted)
  6. Lindbeck, Assar & Snower, Dennis J, 1988. "Cooperation, Harassment, and Involuntary Unemployment: An Insider-Outsider Approach," American Economic Review, American Economic Association, vol. 78(1), pages 167-88, March. [Downloadable!] (restricted)
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  7. Bowles, Samuel, 1985. "The Production Process in a Competitive Economy: Walrasian, Neo-Hobbesian, and Marxian Models," American Economic Review, American Economic Association, vol. 75(1), pages 16-36, March. [Downloadable!] (restricted)
  8. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard H, 1986. "Fairness and the Assumptions of Economics," Journal of Business, University of Chicago Press, vol. 59(4), pages S285-300, October. [Downloadable!] (restricted)
  9. Fehr, Ernst, 1990. "Cooperation, Harassment, and Involuntary Unemployment: Comment," American Economic Review, American Economic Association, vol. 80(3), pages 624-30, June. [Downloadable!] (restricted)
  10. Kahneman, Daniel & Knetsch, Jack L & Thaler, Richard, 1986. "Fairness as a Constraint on Profit Seeking: Entitlements in the Market," American Economic Review, American Economic Association, vol. 76(4), pages 728-41, September. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Frans van Dijk & Joep Sonnemans & Frans van Winden, 1996. "Social Ties in a Public Good Experiment," Tinbergen Institute Discussion Papers 96-178/1, Tinbergen Institute. [Downloadable!]
  2. Dufwenberg, M. & Kirchsteiger, G., 1998. "A theory of sequential reciprocity," Discussion Paper 37, Tilburg University, Center for Economic Research. [Downloadable!]
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  3. Antonio Garofalo & R. Plasman & Concetto Paolo Vinci, 2000. "Reducing Working Time In An Efficiency Wage Economy With A Dual Labour Market," Working Papers 7_2000, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  4. Antonio Garofalo & Concetto Paolo Vinci, 2000. "Employment, Capital Operating Time And Efficiency Wages Hypothesis: Is There Any Room For Worksharing?," Working Papers 4_2000, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy. [Downloadable!]
  5. Diaz-Vazquez, Pilar & Snower, Dennis J., 2002. "Can Insider Power Affect Employment?," CEPR Discussion Papers 3472, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  6. Díaz-Vázquez, Pilar & Snower, Dennis, 2002. "On-the Job Training and the Effects of Insider Power," IZA Discussion Papers 586, Institute for the Study of Labor (IZA). [Downloadable!]
  7. Nyssens, Marthe & Van der Linden, Bruno, 1998. "Embeddedness, cooperation and popular-economy firms in the informal sector," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1998025, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Oct 1998. [Downloadable!]
    Other versions:
  8. Ernst Fehr & Georg Kirchsteiger & Arno Riedl, 2003. "Gift Exchange and Reciprocity in Competitive Experimental Markets," Labor and Demography 0305002, EconWPA. [Downloadable!]
    Other versions:
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