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Insiders and Outsiders in Wage Determination

In: Trade Unions, Wage Formation and Macroeconomic Stability

Author

Listed:
  • Robert M. Solow

    (Massachusetts Institute of Technology)

Abstract

A firm starts with a group of insiders or seasoned workers. There is also a large pool of outsiders who are initially less productive, but are transformed into insiders after one period of employment. The firm gains from having a large pool of insiders, some of whom may be laid off in bad years. Insiders gain from keeping their numbers small. If the insiders set their wage unilaterally, they will choose a path that—in this extreme case—prevents employment of outsiders even if future employment prospects are good. If the wage path is set by bilateral bargaining, the extra advantage to the firm permits employment of some outsiders in some situations.

Suggested Citation

  • Robert M. Solow, 1986. "Insiders and Outsiders in Wage Determination," Palgrave Macmillan Books, in: Lars Calmfors & Henrik Horn (ed.), Trade Unions, Wage Formation and Macroeconomic Stability, pages 269-286, Palgrave Macmillan.
    • Handle: RePEc:pal:palchp:978-1-349-08596-5_18
    DOI: 10.1007/978-1-349-08596-5_18
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    Cited by:

    1. Joonmo Cho & Jinha Kim, 2018. "Identifying Factors Reinforcing Robotization: Interactive Forces of Employment, Working Hour and Wage," Sustainability, MDPI, vol. 10(2), pages 1-21, February.

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