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Insider Bargaining Power, Starting Wages and Involuntary Unemployment

Author

Listed:
  • Nils Gottfries
  • Tomas Sjostrom

Abstract

Recent studies of wage bargaining and unemployment have emphasized the distinction between insiders and outsiders, and that unions act in the interest of insiders. Yet it is typically assumed that insiders and recently hired outsiders are paid the same wage. We consider a model where the starting wage may differ from 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 the hiring of outsiders. JEL classification: J23; J31; J33

Suggested Citation

  • Nils Gottfries & Tomas Sjostrom, 2000. "Insider Bargaining Power, Starting Wages and Involuntary Unemployment," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(4), pages 669-688, December.
    • Handle: RePEc:bla:scandj:v:102:y:2000:i:4:p:669-688
    DOI: 10.1111/1467-9442.00220
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    Cited by:

    1. Marco Guerrazzi & Pier Giuseppe Giribone, 2022. "The dynamics of working hours and wages under implicit contracts," Bulletin of Economic Research, Wiley Blackwell, vol. 74(4), pages 1075-1094, October.
    2. Carlsson, Mikael & Eriksson, Stefan & Gottfries, Nils, 2006. "Testing Theories of Job Creation: Does Supply Create Its Own Demand?," IZA Discussion Papers 2024, IZA Network @ LISER.
    3. Pilar Díaz‐Vázquez & Dennis J. Snower, 2003. "Can Insider Power Affect Employment?," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 139-150, May.
    4. Andy Snell & Jonathan P. Thomas & Zhewei Wang, 2015. "A Competitive Model Of Worker Replacement And Wage Rigidity," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 419-430, January.
    5. Jonathan Thomas, 2000. "Fair Pay and a Wagebill Argument for Wage Rigidity and Excessive Employment Variability," CESifo Working Paper Series 234, CESifo.
    6. Diaz-Vazquez, Pilar & Snower, Dennis, 2006. "On-the-Job Learning and the Effects of Insider Power," Labour Economics, Elsevier, vol. 13(3), pages 317-341, June.
    7. Jonathan P. Thomas, 1999. "Fair Pay and a Wagebill Arguement for Wage Rigidity and Excessive Employment Variability," Discussion Paper Series, School of Economics and Finance 199919, School of Economics and Finance, University of St Andrews.
    8. Stennek, Johan, 2012. "Why Unions Reduce Wage Inequality, I - A Theory of Domino Effects," Working Papers in Economics 539, University of Gothenburg, Department of Economics, revised Jun 2015.
    9. Jonathan Thomas & Andy Snell, 2007. "Real and Nominal Wage Rigidity in a Model of Equal-Treatment Contracting," CDMA Conference Paper Series 0708, Centre for Dynamic Macroeconomic Analysis.
    10. Eriksson, Stefan, 2002. "Imperfect information, wage formation, and the employability of the unemployed," Working Paper Series 2002:17, IFAU - Institute for Evaluation of Labour Market and Education Policy.
    11. Andy Snell & Jonathan P. Thomas, 2010. "Labor Contracts, Equal Treatment, and Wage-Unemployment Dynamics," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 98-127, July.
    12. Eriksson, Stefan & Gottfries, Nils, 2005. "Ranking of job applicants, on-the-job search, and persistent unemployment," Labour Economics, Elsevier, vol. 12(3), pages 407-428, June.
    13. Johan Stennek, 2020. "Why Unions Reduce Wage Inequality: A Theory of Domino Effects," Scandinavian Journal of Economics, Wiley Blackwell, vol. 122(3), pages 1045-1072, July.
    14. Diaz-Vazquez, Pilar & Snower, Dennis J., 2002. "On-the-Job Training and the Effects of Insider Power," IZA Discussion Papers 586, IZA Network @ LISER.
    15. Díaz-Vázquez, Pilar & Snower, Dennis J., 2003. "Can insider power affect employment?," Open Access Publications from Kiel Institute for the World Economy 2992, Kiel Institute for the World Economy.

    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods

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