On-the-Job Learning and the Effects of Insider Power

Suppose insiders use their market power to push up their wages, while entrants receive their reservation wages. How will employment and productivity be affected? In addressing this question, we focus on the role of on-the-job learning. We show that on-the-job learning makes insider wage hikes less detrimental to average employment (over booms and recessions), and may even cause employment to be stimulated. Furthermore, such learning can make insider wage hikes more detrimental to average productivity.