MORE ON UNEMPLOYMENT
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10.3
The Insider–Outsider Approach
In the efficiency wage approach, it is not in the interest of the firm to reduce
wages. In the insider–outsider approach, it is not in the interest of incumbent
workers to do so. Insider–outsider theories argue that various types of labour
turnover costs create rents and market power for incumbent workers in exist-
ing firms, who are called the insiders. This allows insiders to push their wages
above the market-clearing wage without them losing their jobs.
11
I
NSIDERS
are
experienced incumbent employees whose positions are protected by labour
turnover cost. Outsiders ...
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