Insider-outsider theory

from Wikipedia, the free encyclopedia

The insider-outsider theory in labor economics tries to explain why falling wages do not lead to full employment . In contrast to the efficiency wage theory , it is not the employer but the employee that is the cause. This model was developed by Assar Lindbeck and Dennis Snower since 1984 in a number of economic articles.

In this model, "insiders" are employees who have been employed by a company for a long time and who, in the event of a dismissal, will find better job offers than "outsiders" who have only recently been employed by the respective employer. Since the company incurs costs when they want to replace an "insider" with an "outsider" - especially through industry or company-specific training - insiders are in a better negotiating position with regard to wages. Outsiders, on the other hand, are in a worse position and accept lower wages in a crisis situation in order to keep their jobs.

From the employer's point of view, it often makes sense to comply with the demands of the insiders and not lower wages, while the insiders do not cooperate with the outsiders who are willing to undercut their wages in order to keep their jobs. As a result, wages never fall to a level that leads to full employment - even if the unemployed are willing to work for a lower wage.

Blanchard and Summers (1987) justify the persistent unemployment after a crisis with the insider-outsider model: An economic crisis also leads to the dismissal of many insiders who then become outsiders. If the situation improves, the few remaining - and sought-after - insiders demand even higher wages because the company is in a predicament: It has to convert a large number of outsiders into insiders at great expense. An effect known as hysteresis now occurs - the economic crisis can therefore lead to a sustained high wage level even with a long delay, which prevents full employment.

literature

  • Lindbeck, Assar, and Dennis J. Snower (1984): Involuntary Unemployment as an Insider-Outsider Dilemma. Seminar Paper No. 309, Institute for International Economic Studies, University of Stockholm, Sweden.
  • Olivier J. Blanchard, Lawrence H. Summers: Hysteresis and the European Unemployment Problem. NBER Working Paper No. 1950 (Also Reprint No. r0808), 1987