Vol. 52 (1990), No. 1, pp. 43--54 Journal of Economics Zeitschrift fiJr National~konomie 9 by Springer-Verlag 1990 Insiders and Outsiders in Labour Market Models By Steinar Holden, Oslo, Norway* (Received January 15, 1990; revised version received April 30, 1990) The monopoly union model and the wage bargaining model are analysed in light of the distinction between insiders and outsiders. It is shown that a possible outcome of the wage bargaining is the wage level where all insiders keep their job, but no outsiders are taken on. In this sit- uation, small variations in the bargaining situation of the union will not affect the wage and employment outcome. Furthermore, it may even be the case that the union does not wish a higher wage, because this would lead to lay-offs among the insiders. Thus, the monopoly union model and the bargaining model may yield the same wage and employment levels. 1. Introduction The last few years have seen an increasing interest in the conse- quences of the distinction between insiders and outsiders in labour market models, see e.g. Lindbeck and Snower (1988), Solow (1985), and Carruth and Oswald (1987). The motivation for this distinction is that union behaviour is determined by the current membership, the insiders. The insiders will pursue their own inter- ests, which in general will be different from the interests of those who are not members of the union, the outsiders. In spite of the large interest in insider-outsider problems many unresolved ques- tions remain. In this paper I use an insider-outsider model to study * This paper is part of the research project "Wage Formation and Unemployment" at SAF Center for Applied Research at the Department of Economics, University of Oslo. Comments from Michael Hoel, Andrew Oswald, Asa Ros+n, Asbjorn Rodseth and an anonymous referee on ear- lier drafts are gratefully acknowledged.