Those already employed have bargaining power that those seeking work do not, so labour institutions can protect one group at the other's expense.
Lindbeck and Snower's 1986 model. It explains why unemployment persists after a recession ends: those in work bargain over their own terms, and the unemployed are not at the table.
In practice
- A firm's permanent staff negotiate a pay settlement and a recruitment freeze in the same agreement, and neither side represents the people not hired.
- A profession that raises its licensing requirements protects its current members and prices out the next cohort, and both effects are in the same rule.