Insider Power in Wage Determination

Abstract

The paper argues that wage determination is best seen as a kind of rent-sharing in which workers' bargaining power is influenced by conditions in the external labour market. It uses British establishment data from 1984 to show that pay depends upon a blend of insider pressure (including the employer's financial performance and oligopolistic position) and outsider pressure (including external wages and unemployment). Lester's feasible "range" of wages appears typically to be between 8 and 22% of pay. Estimates of the unemployment elasticity of the wage lie in a narrow band around -0.1.

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