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The Insider-Outsider Theory: A Survey

Listed author(s):
  • Lindbeck, Assar

    ()

    (Stockholm University)

  • Snower, Dennis J.

    ()

    (Kiel Institute for the World Economy)

Registered author(s):

    This article is an idiosyncratic survey of the insider-outsider theory, describing the vision underlying the theory, and evaluating salient contributions to the literature in the light of this vision. We also indicate what appear to have been dead-ends and red herrings in past research. The first section deals with the theory, concerning how labor turnover costs influence insider wages and outsiders’ opportunities and how these costs affect employment and unemployment. We also address the more complex, and open, question of how employment and unemployment move through time, in response to labor market shocks. The second section deals with the insider-outsider theory in relation to two important economic institutions: unions and social norms. The third section confronts the relevant empirical evidence. Finally, the last section concludes by clarifying some common misunderstandings and identifying promising areas of future research.

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    Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 534.

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    Length: 55 pages
    Date of creation: Jul 2002
    Handle: RePEc:iza:izadps:dp534
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    1. McDonald, Ian M, 1989. "The Wage Demands of a Selfish, Plant-Specific Trade Union," Oxford Economic Papers, Oxford University Press, vol. 41(3), pages 506-527, July.
    2. Mulvey, Gail C, 1997. "Can Insider-Outsider Theories Explain the Persistence of Unemployment? An Econometric Study of Two British Industries," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(2), pages 170-191, March.
    3. Oswald, Andrew J, 1985. " The Economic Theory of Trade Unions: An Introductory Survey," Scandinavian Journal of Economics, Wiley Blackwell, vol. 87(2), pages 160-193.
    4. Layard, Richard & Nickell, Stephen & Jackman, Richard, 1991. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780198284345.
    5. Lindbeck, Assar & Nyberg, Sten & Weibull, Jörgen W., 1997. "Social Norms and Economic Incentives in the Welfare State," Working Paper Series 476, Research Institute of Industrial Economics.
    6. Lazear, Edward P, 1981. "Agency, Earnings Profiles, Productivity, and Hours Restrictions," American Economic Review, American Economic Association, vol. 71(4), pages 606-620, September.
    7. Turnbull, Peter J, 1988. "Industrial Relations and the Seniority Model of Union Behaviour," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 50(1), pages 53-70, February.
    8. Lindbeck, Assar & Snower, Dennis J, 1994. "How Are Product Demand Changes Transmitted to the Labour Market?," Economic Journal, Royal Economic Society, vol. 104(423), pages 386-398, March.
    9. Malcomson, James M., 1999. "Individual employment contracts," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 3, chapter 35, pages 2291-2372 Elsevier.
    10. Shaked, Avner & Sutton, John, 1984. "Involuntary Unemployment as a Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 52(6), pages 1351-1364, November.
    11. Lindbeck, A., 1994. "Welfare State Disincentives with Endogenous Habits and Norms," Papers 589, Stockholm - International Economic Studies.
    12. Barry McCormick, 1990. "A Theory of Signalling During Job Search, Employment Efficiency, and "Stigmatised" Jobs," Review of Economic Studies, Oxford University Press, vol. 57(2), pages 299-313.
    13. Oecd, 1998. "The OECD Jobs Strategy: Progress Report on Implementation of Country-Specific Recommendations," OECD Economics Department Working Papers 196, OECD Publishing.
    14. Lockwood, Ben & Manning, Alan, 1989. "Dynamic Wage-Employment Bargaining with Employment Adjustment Costs," Economic Journal, Royal Economic Society, vol. 99(398), pages 1143-1158, December.
    15. Nickell, Stephen & Kong, Paul, 1992. "An investigation into the power of insiders in wage determination," European Economic Review, Elsevier, vol. 36(8), pages 1573-1599, December.
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