Suppose insiders use their market power to push up their wages,
while entrants receive their reservation wages. How will employment
be a¤ected? In addressing this question, we focus on the role of onthe-
job training. We show that an insider wage hike reduces recessiontime
employment but, in the presence of on-the-job-training, increases
boom-time employment. Thus on-the-job training can make insider
wage hikes less detrimental to average employment (over booms and
recessions). We show that when such training is su¢ciently high and
when economic shocks are su¢ciently transient, an insider wage hike
may even lead to a rise in average employment.
Keywords: insider power, employment, on-the-job training.