Wage and employment determination in a dynamic insider–outsider model

Marco Guerrazzi

Evolutionary and Institutional Economics Review, 2020, vol. 17, issue 1, No 1, 23 pages

Abstract: 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.

Keywords: Insider–outsider theory; Union modelling; Differential games; Open-loop Stackelberg equilibria (search for similar items in EconPapers)
JEL-codes: E24 E32 J51 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Working Paper: Wage and employment determination in a dynamic insider-outsider model (2016)
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DOI: 10.1007/s40844-019-00158-w

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