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 twenty 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.

Wage and Employment Determination in a Dynamic Insider-Outsider Model

Marco Guerrazzi
2020-01-01

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 twenty 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.
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Descrizione: This is a pre-print of an article published in Evolutionary and Institutional Economics Review. The final authenticated version is available online at: https://doi.org/10.1007/s40844-019-00158-w
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11567/999719
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