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Wage and employment determination in a dynamic insider–outsider model

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  • Marco Guerrazzi

    (University of Genoa)

Abstract

In this paper, I develop a differential insider–outsider game in which a union of corporative incumbents chooses the wage of its members by taking into account the optimal employment policy of a firm that, in turn, is assumed to decide the number of outsiders to hire in a spot labour market. Under the assumption that incumbents cannot be fired and commit themselves to a given path of wages, I demonstrate that such a game displays an open-loop Stackelberg equilibrium in which the initial stock of insiders pins down the trajectories of incumbents, entrants and insider wages. Moreover, resorting to numerical simulations, I show that adjustments towards the steady-state equilibrium occur through asymmetric oscillations that mimic the decline of union membership and union wage premia observed in the US all over the last 20 years. In addition, I show that the model provides a positive relationship between the labour market power of the insider union and the impatience of the firm.

Suggested Citation

  • Marco Guerrazzi, 2020. "Wage and employment determination in a dynamic insider–outsider model," Evolutionary and Institutional Economics Review, Springer, vol. 17(1), pages 1-23, January.
    • Handle: RePEc:spr:eaiere:v:17:y:2020:i:1:d:10.1007_s40844-019-00158-w
    DOI: 10.1007/s40844-019-00158-w
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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. Guerrazzi, Marco & Candido, Giuseppe, 2023. "The determination of the price of capital goods: A differential game approach," MPRA Paper 119118, University Library of Munich, Germany.

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    More about this item

    Keywords

    Insider–outsider theory; Union modelling; Differential games; Open-loop Stackelberg equilibria;
    All these keywords.

    JEL classification:

    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects

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