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Insider power, wage discrimination, and fairness

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  • Ernst Fehr
  • Georg Kirchsteiger

Abstract

The exercise of insider power is frequently considered as a major cause of involuntary unemployment. The authors show that under standard assumptions--insiders are selfish and they need not fear the loss of their job--insider power does not cause unemployment but leads to the introduction of a market-clearing, two-tier wage system. Yet, while insider power is a common phenomenon, two-tier systems are rarely observed. To explain this fact, the authors introduce interdependent preferences. They show that, if entrants exhibit a preference for fairness, the presence of insider power gives rise to an efficiency wage effect that may prevent the introduction of market-clearing, two-tier systems. Copyright 1994 by Royal Economic Society.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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  • Ernst Fehr & Georg Kirchsteiger, 1994. "Insider power, wage discrimination, and fairness," ULB Institutional Repository 2013/5923, ULB -- Universite Libre de Bruxelles.
    • Handle: RePEc:ulb:ulbeco:2013/5923
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    References listed on IDEAS

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    Cited by:

    1. Burks, Stephen V. & Guy, Frederick, 2012. "What Are Over-the-Road Truckers Paid For? Evidence from an Exogenous Regulatory Change on the Role of Social Comparisons and Work Organization in Wage Determination," IZA Discussion Papers 6375, Institute of Labor Economics (IZA).
    2. Jyh‐Bang Jou & Tan (Charlene) Lee, 2021. "Uncertainty, hiring and firing costs, and the determinants of profit‐sharing rules," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 42(1), pages 185-197, January.
    3. Fehr, Ernst & Kirchsteiger, Georg & Riedl, Arno, 1998. "Gift exchange and reciprocity in competitive experimental markets," European Economic Review, Elsevier, vol. 42(1), pages 1-34, January.
    4. Antonio Garofalo & Concetto Paolo Vinci, 2000. "Employment, capital operating time and efficiency wages hypothesis: is there any room for worksharing," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, vol. 168, pages 397-442.
    5. Giuseppe Bertola, 2014. "Labor market policies and European crises," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-11, December.
    6. Antonio Garofalo & R. Plasman & Concetto Paolo Vinci, 2000. "Reducing Working Time In An Efficiency Wage Economy With A Dual Labour Market," Working Papers 7_2000, D.E.S. (Department of Economic Studies), University of Naples "Parthenope", Italy.
    7. Diaz-Vazquez, Pilar & Snower, Dennis, 2006. "On-the-Job Learning and the Effects of Insider Power," Labour Economics, Elsevier, vol. 13(3), pages 317-341, June.
    8. Gneezy, Uri & Guth, Werner & Verboven, Frank, 2000. "Presents or investments? An experimental analysis," Journal of Economic Psychology, Elsevier, vol. 21(5), pages 481-493, October.
    9. Charness, Gary & Kuhn, Peter, 2011. "Lab Labor: What Can Labor Economists Learn from the Lab?," Handbook of Labor Economics, in: O. Ashenfelter & D. Card (ed.), Handbook of Labor Economics, edition 1, volume 4, chapter 3, pages 229-330, Elsevier.
    10. Diaz-Vazquez, Pilar & Snower, Dennis J., 2002. "On-the-Job Training and the Effects of Insider Power," IZA Discussion Papers 586, Institute of Labor Economics (IZA).
    11. Nyssens, Marthe & Van der Linden, Bruno, 2000. "Embeddedness, cooperation and popular-economy firms in the informal sector," Journal of Development Economics, Elsevier, vol. 61(1), pages 175-204, February.
    12. Linfeng Chen, 2021. "Reciprocity Game," Bulletin of Economic Research, Wiley Blackwell, vol. 73(1), pages 131-141, January.
    13. Dufwenberg, Martin & Kirchsteiger, Georg, 2004. "A theory of sequential reciprocity," Games and Economic Behavior, Elsevier, vol. 47(2), pages 268-298, May.
    14. Pilar Díaz‐Vázquez & Dennis J. Snower, 2003. "Can Insider Power Affect Employment?," German Economic Review, Verein für Socialpolitik, vol. 4(2), pages 139-150, May.
    15. Mattijs Lambooij & Karin Sanders & Ferry Koster & Marieke Zwiers, 2006. "Human Resource Practices and Organisational Performance: Can the HRM-Performance Linkage be Explained by the Cooperative Behaviours of Employees?," management revue - Socio-Economic Studies, Nomos Verlagsgesellschaft mbH & Co. KG, vol. 17(3), pages 223-240.
    16. Frey, Bruno S. & Bohnet, Iris, 1997. "Identification in democratic society," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 26(1), pages 25-38.
    17. Thomas A. Rietz & Eric Schniter & Roman M. Sheremeta & Timothy W. Shields, 2018. "Trust, Reciprocity, And Rules," Economic Inquiry, Western Economic Association International, vol. 56(3), pages 1526-1542, July.
    18. Manuel David Cruz, 2022. "Labor productivity, real wages, and employment: evidence from a panel of OECD economies over 1960-2019," Working Papers PKWP2203, Post Keynesian Economics Society (PKES).

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    More about this item

    JEL classification:

    • J23 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Demand
    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J71 - Labor and Demographic Economics - - Labor Discrimination - - - Hiring and Firing

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