The Insider-Outsider Theory: A Survey
Stockholm University - Institute for International Economic Studies (IIES); CESifo (Center for Economic Studies and Ifo Institute); Research Institute of Industrial Economics (IFN)
Dennis J. Snower
University of Kiel - Institute for World Economics (IfW); Institute for the Study of Labor (IZA); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)
IZA Discussion Paper No. 534
This article is an idiosyncratic survey of the insider-outsider theory, describing the vision underlying the theory, and evaluating salient contributions to the literature in the light of this vision. We also indicate what appear to have been dead-ends and red herrings in past research. The first section deals with the theory, concerning how labor turnover costs influence insider wages and outsiders' opportunities and how these costs affect employment and unemployment. We also address the more complex, and open, question of how employment and unemployment move through time, in response to labor market shocks. The second section deals with the insider-outsider theory in relation to two important economic institutions: unions and social norms. The third section confronts the relevant empirical evidence. Finally, the last section concludes by clarifying some common misunderstandings and identifying promising areas of future research.
Number of Pages in PDF File: 54
Keywords: Employment, Unemployment, Wages, Insiders, Outsiders, Unemployment Persistence, Social Exclusion, Labor Turnover Costs
JEL Classification: J23,J24,J31,J32,J38,J41,J42,J51,J63,J64,J68
Date posted: August 21, 2002
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