Can Insider Power Affect Employment?
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Pilar Díaz-Vázquez
Abstract
Do firms reduce employment when their insiders (established, incumbent employees) claim higher wages? The conventional answer in the theoretical literature is that insider power has no influence on employment, provided that the newly hired employees (entrants) receive their reservation wages. The reason given is that an increase in insider wages gives rise to a countervailing fall in reservation wages, leaving the present value of wage costs unchanged. Our analysis contradicts this conventional answer. We show that, in the context of a stochastic model of the labor market, an increase in insider wages promotes firing in recessions, while leaving hiring in booms unchanged. Thereby insider power reduces average employment.
© 2019 by Walter de Gruyter Berlin/Boston
Articles in the same Issue
- Can Insider Power Affect Employment?
- Pension Reform, Capital Markets and the Rate of Return
- Supply-Side Economics of Germany’s Year 2000 Tax Reform: A Quantitative Assessment
- The Income Splitting Method: Is it Good for Both Marriage Partners?
- The Effect of Communication Media on Cooperation
- Fairness in the Mail and Opportunism in the Internet: A Newspaper Experiment on Ultimatum Bargaining
Articles in the same Issue
- Can Insider Power Affect Employment?
- Pension Reform, Capital Markets and the Rate of Return
- Supply-Side Economics of Germany’s Year 2000 Tax Reform: A Quantitative Assessment
- The Income Splitting Method: Is it Good for Both Marriage Partners?
- The Effect of Communication Media on Cooperation
- Fairness in the Mail and Opportunism in the Internet: A Newspaper Experiment on Ultimatum Bargaining
