Scandinavian Working Papers in Economics

CLS Working Papers,
University of Aarhus, Aarhus School of Business, Centre for Labour Market and Social Research

No 00-2: Is Unemployment Always Higher when Insiders Decide?

Trine Filges () and Birthe Larsen ()
Additional contact information
Trine Filges: Centre for Labour Market and Social Research, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark
Birthe Larsen: Centre for Labour Market and Social Research, Aarhus School of Business, Postal: The Aarhus School of Business, Prismet, Silkeborgvej 2, DK 8000 Aarhus C, Denmark

Abstract: This paper challenges the traditional view that unemployment is high because insiders determine the union wage. The insiders in this paper are characterized by being more efficient when they search for a job than the outsiders, implying that they experience relatively less unemployment. We assume that wages are determined by a monopoly union and further that a union leader is elected by a majority voting rule. Insiders may prefer a lower wage than outsiders, implying the possibility of lower unemployment when insiders are decisive in the union than if outsiders were decisive in the union.

Keywords: Insiders and outsiders; Search; Uemployment

JEL-codes: J64

20 pages, March 1, 2000

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