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Insider Bargaining Power, Starting Wages, and Involuntary Unemployment

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  • Gottfries, N.
  • Sjostrom, Y.

Abstract

Recent analyses of wage bargaining has emphasized the distinction between insiders and outsiders, yet one typically assumes that insiders and recently hired outsiders are paid the same wage. We consider a model where the starting wage for outsiders may be lower that the insider wage, but incentive constraints associated with turnover affect the form of the contract. We examine under what conditions the starting wage is linked to the insider wage so that increased bargaining power of insiders raises the starting wage and reduces hiring of outsiders.

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Bibliographic Info

Paper provided by Uppsala - Working Paper Series in its series Papers with number 1998-10.

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Length: 26 pages
Date of creation: 1998
Date of revision:
Handle: RePEc:fth:uppaal:1998-10

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Postal: UPPSALA UNIVERSITY, DEPARTMENT OF ECONOMICS, S-751 20 UPPSALA SWEDEN.
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: WAGES ; BARGAINING ; UNEMPLOYMENT;

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References

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  1. Moore, John, 1985. "Optimal Labour Contracts When Workers Have a Variety of Privately Observed Reservation Wages," Review of Economic Studies, Wiley Blackwell, vol. 52(1), pages 37-67, January.
  2. Gottfries, Nils & Horn, Henrik, 1987. "Wage Formation and the Persistence of Unemployment," Economic Journal, Royal Economic Society, vol. 97(388), pages 877-84, December.
  3. W. Bentley MacLeod & James M. Malcomson, 1986. "Implicit Contracts, Incentive Compatibility, and Involuntary Unemployment," Working Papers 585, Queen's University, Department of Economics.
  4. Peter Kuhn & Jacques Robert, 1988. "Seniority and Distribution in a Two-Worker Trade Union," Working Papers 615, Princeton University, Department of Economics, Industrial Relations Section..
  5. Frank, Jeff & Malcomson, James M., 1994. "Trade unions and seniority employment rules," European Economic Review, Elsevier, vol. 38(8), pages 1595-1611, October.
  6. Oswald, Andrew J., 1993. "Efficient contracts are on the labour demand curve : Theory and facts," Labour Economics, Elsevier, vol. 1(1), pages 85-113, June.
  7. MacLeod, W. Bentley & Malcomson, James M., 1993. "Wage premiums and profit maximization in efficiency wage models," European Economic Review, Elsevier, vol. 37(6), pages 1223-1249, August.
  8. Mincer, Jacob & Higuchi, Yoshio, 1988. "Wage structures and labor turnover in the United States and Japan," Journal of the Japanese and International Economies, Elsevier, vol. 2(2), pages 97-133, June.
  9. Gollier, Christian, 1991. "Wage Differentials, the Insider-Outsider Dilemma, and Entry-Deterrence," Oxford Economic Papers, Oxford University Press, vol. 43(3), pages 391-408, July.
  10. Lindbeck, Assar & Snower, Dennis J., 1987. "Union activity, unemployment persistence and wage-employment ratchets," European Economic Review, Elsevier, vol. 31(1-2), pages 157-167.
  11. Gottfries, N. & Westermak, A., 1995. "Nominal Wage Contracts and the Persistent Effects of Monetary Policy," Papers 1995-22, Uppsala - Working Paper Series.
  12. Oswald, Andrew J, 1986. "Unemployment Insurance and Labor Contracts under Asymmetric Information: Theory and Facts," American Economic Review, American Economic Association, vol. 76(3), pages 365-77, June.
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