Can insider power affect employment?

Arbeitspapier

Do firms reduce employment when their insiders (established, incumbent employees) claim higher wages? The conventional answer in the theoretical literature is that insider power has no influence on employment, provided that the newly hired employees (entrants) receive their reservation wages. The reason given is that an increase in insider wages gives rise to a counterveiling fall in reservation wages, leaving the present value of wage costs unchanged. Our analysis contradicts this conventional answer. We show that, in the context of a stochastic model of the labor market, an increase in insider wages promotes firming in recessions, while leaving hiring in booms unchanged. Thereby insider power reduces average employment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IZA Discussion Papers ; No. 506

Classification and Topics

• Classification: Wirtschaft ; Monopsony; Segmented Labor Markets ; Unemployment: Models, Duration, Incidence, and Job Search ; Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity ; Labor Demand ; Wage Level and Structure; Wage Differentials
• Subject: employment ; labor demand ; wage differentials ; insider power ; Lohnstruktur ; Insider-Outsider-Modell ; Arbeitsuche ; Anspruchslohn ; Marktmacht ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Díaz-Vázquez, Pilar ; Snower, Dennis J.
• Event: Veröffentlichung
• (who): Institute for the Study of Labor (IZA)
• (where): Bonn
• (when): 2002

Further information

• Handle: http://hdl.handle.net/10419/2787
• Last update: 10.03.2025, 11:42 AM CET