Insiders and outsiders in wage determination 413 wage because they think it is an improper or undignified thing to do, and because they would not like others to do it unto them if roles were reversed as they might be next time. But I realize full well that this is not the way economics is supposed to model the world, and so I mention it only as a Galilean remark(i.e, something best muttered to oneself). That leaves us without a good explanation of the behavior of the unemployed, and I will not provide one here. We have better prospects of modelling the behavior of the other parties in he labor market: employers and employed workers. By itself, that would go some way toward explaining(or explaining away) the reticence of the unemployed. Once they have concluded a formal or informal agreement with their workers and achieved the desired level of employment under that agreement, employers often announce simply that they are not hiring Unemployed workers, knowing the state of affairs, may not bother to ti Of course an explanation is required of employers' behavior but that may be easier. I have already mentioned one such explanation; Lindbeck Snower(1984)have another(see below); and this paper will provide a third Any attempt to model a unionized labor market in anything less than the longest run must start with a strategic choice about the degree of centralia tion in collective bargaining. Economists in many European economies such as the Nordic ones, gravitate toward the assumption of centralized bargaining between an all-inclusive trade union and a single employer this is natural in economies where nearly 90 of blue-collar workers belong to a union, and where collective bargaining tends to occur at the national level. My model is more suited to U. S. conditions where only about a third of blue-collar workers and fewer than a quarter of all workers are orga nized, and even industry-wide bargaining is far from universal. In such a situation, both parties know that there is, out there, a large number of nonunion workers, even if a firm is dealing with a disciplined union Nonunion workers may, of course, lack some of the skills, especially the firm-specific skills, possessed by union members. The particular problem I want to study is the effect on wage-bargaining of the presence of that unorganized fringe This paper shares a basic orientation with Lindbeck Snower(1984) Most models of bargaining and contracting in the labor market pay attention only to the conflict of interest between the firm-employer and its labor pool or group of attached potential employees. when there is involuntary unem- ployment, however, the interests of employed and unemployed workers also diverge. This is obviously the case if the indifference principle does not hold. Even if it does there is a conflict of interest between workers under the contract and those -new entrants to the labor force and others who are currently without a contract of any kind, and are seeking long-term membership in a labor pool. the basic similarity between this paper and the 27-858472 Scand J, of Economics 1985Insiders and outsiders in wage determination 413 wage because they think it is an improper or undignified thing to do, and because they would not like others to do it unto them if roles were reversed, as they might be next time. But I realize full well that this is not the way economics is supposed to model the world, and so I mention it only as a Galilean remark (i.e., something best muttered to oneself). That leaves us without a good explanation of the behavior of the unemployed, and I will not provide one here. We have better prospects of modelling the behavior of the other parties in the labor market: employers and employed workers. By itself, that would go some way toward explaining (or explaining away) the reticence of the unemployed. Once they have concluded a formal or informal agreement with their workers and achieved the desired level of employment under that agreement, employers often announce simply that they are not hiring. Unemployed workers, knowing the state of affairs, may not bother to try. Of course an explanation is required of employers' behavior, but that may be easier. I have already mentioned one such explanation; Lindbeck & Snower (1984) have another (see below); and this paper will provide a third. Any attempt to model a unionized labor market in anything less than the longest run must start with a strategic choice about the degree of centraliza￾tion in collective bargaining. Economists in many European economies, such as the Nordic ones, gravitate toward the assumption of centralized bargaining between an all-inclusive trade union and a single employer. This is natural in economies where nearly 90% of blue-collar workers belong to a union, and where collective bargaining tends to occur at the national level. My model is more suited to U.S. conditions where only about a third of blue-collar workers and fewer than a quarter of all workers are orga￾nized, and even industry-wide bargaining is far from universal. In such a situation, both parties know that there is, out there, a large number of nonunion workers, even if a firm is dealing with a disciplined union. Nonunion workers may, of course, lack some of the skills, especially the firm-specific skills, possessed by union members. The particular problem I want to study is the effect on wage-bargaining of the presence of that unorganized fringe. This paper shares a basic orientation with Lindbeck & Snower (1984). Most models of bargaining and contracting in the labor market pay attention only to the conflict of interest between the firm-employer and its labor pool or group of attached potential employees. When there is involuntary unem￾ployment, however, the interests of employed and unemployed workers also diverge. This is obviously the case if the indifference principle does not hold. Even if it does, there is a conflict of interest between workers under the contract and those-new entrants to the labor force and others-who are currently without a contract of any kind, and are seeking long-term membership in a labor pool. The basic similarity between this paper and the 27-858472 Scand. J. of Economics 1985