Insiders and Trade Union Wage Bargaining

Abstract

This paper analyzes a trade union dominated by a sub-group of employed insiders who enjoy secure employment. From the analysis the bargained wage is shown to be positively related to the union power parameter and lay-off pay and negatively related to the degree of risk aversion of the employed insiders and the elasticity of the firm's revenue with respect to employment. These variables exert a similar influence on wages in models of the trade union where outsiders receive an equal weight to insiders in the trade union's objective function. This similarity is in marked contrast to much of the recent literature on insiders and implies that making a distinction between insiders and outsiders is not very important. Copyright 1991 by Blackwell Publishers Ltd and The Victoria University of Manchester