Wage Bargaining in the Share Economy

Abstract

In this chapter we consider a world in which the senior employees of a firm (insiders) differ from the new entrants or the unemployed (outsiders) in that, even though their ability and productivity is potentially the same as everybody else’s, they enjoy a market power vis-à-vis the firm because of the existence of turnover costs (for example, hiring, firing, and training costs). Thanks to these costs the insiders are able to raise their wage above the minimal level required to induce workers to become entrants. For this reason the system may exhibit involuntary unemployment in long-run equilibrium, one that — unlike the type of unemployment considered in the previous chapters — is unaffected by cyclical fluctuations in demand. The existence of labour unions at firm level fits easily into this framework, further reinforcing the insiders’ bargaining power, but is not a necessary condition for an equilibrium unemployment to arise.