Insiders and Outsiders in Wage Determination

Robert Solow

A chapter in Trade Unions, Wage Formation and Macroeconomic Stability, 1986, pp 269-286 from Palgrave Macmillan

Abstract: 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.

Keywords: Labor Market; Reservation Wage; Unemployed Worker; Bargaining Problem; Nonunion Worker (search for similar items in EconPapers)
Date: 1986
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DOI: 10.1007/978-1-349-08596-5_18

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