Insider bargaining power, starting wages and involuntary unemployment

Recent studies of wage bargaining and unemployment have emphasized the dist inction between insiders and outsiders, and that unions act in the interest of insiders. Yet it is typically assumed that insiders and recently hired outsiders are paid the same wage. We consider a model where the starting wa ge may differ from the insider wage, but incentive constraints associated w ith turnover affect the form of the contract. We examine under what conditi ons the starting wage is linked to the insider wage so that increased barga ining power of insiders raises the starting wage and reduces the hiring of outsiders.