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Wage and employment determination in a dynamic insider-outsider model

Listed author(s):
  • Guerrazzi, Marco

In this paper, I develop a dynamic insider-outsider model in which a union of incumbent workers is called in to choose the wage of its members by taking into account the optimal employment policy of firms that, in turn, are assumed to decide the firing rate of insiders and the number of outsiders to hire. Under the assumption that incumbents are able to observe their own productivity, the one of outsiders and the amount of labour turnover costs paid by firms, I analytically show that the initial stock of insiders may pin down an equilibrium in which the trajectories of incumbents, their own wage and the firing rate are jointly determined and the proposition according to which insiders have an incentive to keep their numbers small holds on a static and a dynamic perspective. Moreover, I numerically show that in this setting insiders adjust their wage in order to retain their positions and such a behaviour leads to asymmetric employment fluctuations and a certain degree of wage stickiness.

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File URL: https://mpra.ub.uni-muenchen.de/74759/1/MPRA_paper_74759.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 74759.

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Date of creation: 26 Oct 2016
Handle: RePEc:pra:mprapa:74759
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  9. Olivier J. Blanchard & Lawrence H. Summers, 1986. "Hysteresis and the European Unemployment Problem," NBER Chapters,in: NBER Macroeconomics Annual 1986, Volume 1, pages 15-90 National Bureau of Economic Research, Inc.
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  14. Eckstein, Zvi & Ge, Suqin & Petrongolo, Barbara, 2006. "Job and wage mobility in a search model with non-compliance (exemptions) with the minimum wage," LSE Research Online Documents on Economics 4961, London School of Economics and Political Science, LSE Library.
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  16. Dertouzos, James N & Pencavel, John H, 1981. "Wage and Employment Determination under Trade Unionism: The International Typographical Union," Journal of Political Economy, University of Chicago Press, vol. 89(6), pages 1162-1181, December.
  17. McCausland, W David, 1998. "Employment Hysteresis in an Overlapping-Generations Insider-Outsider Model," Australian Economic Papers, Wiley Blackwell, vol. 37(4), pages 394-403, December.
  18. Lindbeck, Assar & Snower, Dennis J., 1987. "Efficiency wages versus insiders and outsiders," European Economic Review, Elsevier, vol. 31(1-2), pages 407-416.
  19. Assar Lindbeck & Dennis J. Snower, 1989. "The Insider-Outsider Theory of Employment and Unemployment," MIT Press Books, The MIT Press, edition 1, volume 1, number 026262074x.
  20. Marco Guerrazzi, 2007. "Wage Bargaining in an Optimal Control Framework: A Dynamic Version of the Right-to-Manage Model," Open Discussion Papers in Economics 61, The Open University, Faculty of Social Sciences, Department of Economics.
  21. Huizinga, F & Schiantarelli, Fabio, 1992. "Dynamics and Asymmetric Adjustment in Insider-Outsider Models," Economic Journal, Royal Economic Society, vol. 102(415), pages 1451-1466, November.
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  23. Jordi Galí, 2016. "Insider-outsider labor markets, hysteresis and monetary policy," Economics Working Papers 1506, Department of Economics and Business, Universitat Pompeu Fabra.
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