Can insider power affect employment?

Artikel

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 countervailing 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 firing in recessions, while leaving hiring in booms unchanged. Thereby insider power reduces average employment.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: German economic review ; ISSN: 1465-6485 ; Volume: 4 ; Year: 2003 ; Issue: 2 ; Pages: 139-150 ; Oxford: Blackwell

Classification and Topics

• Classification: Wirtschaft ; Labor Force and Employment, Size, and Structure ; Labor Demand ; Wage Level and Structure; Wage Differentials ; Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions ; Compensation Packages; Payment Methods
• Subject: Employment ; Wage determination ; market power ; insiders ; hiring and firing costs ; 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): Blackwell ; ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften, Leibniz-Informationszentrum Wirtschaft
• (where): Oxford
• (when): 2003

Further information

• DOI: doi:10.1111/1468-0475.00076
• Handle: http://hdl.handle.net/10419/2992
• Last update: 10.03.2025, 11:43 AM CET