Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/2992
Authors: 
Díaz-Vázquez, Pilar
Snower, Dennis J.
Year of Publication: 
2003
Citation: 
[Journal:] German economic review [ISSN:] 1465-6485 [Volume:] 4 [Year:] 2003 [Issue:] 2 [Pages:] 139-150
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.
Subjects: 
Employment
Wage determination
market power
insiders
hiring and firing costs
JEL: 
J21
J23
J31
J32
J33
Persistent Identifier of the first edition: 
Document Type: 
Article

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