Entry, exit, manufacturing industry, the Netherlands, L11, L60,

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The purpose of this paper is to investigate the relative importance of internal (sector‐specific) and external (labour market) forces in sectoral wage formation in the Netherlands (1967–90). The results show that wages are largely determined by external forces, although internal forces are significant as well. The impact of the number of insiders, which plays a role in unemployment persistance, is not significant. Separate estimation results show that the impact of internal forces and of unemployment is weaker in the industrial sectors than in the service sectors. This casts doubt on the presumption that insider power increases the impact of internal forces on wage formation.

The paper provides a review of empirical work on insider-outsider and duration effects in wage formation. It presents a theoretical model to investigate the relationship between previous employment and the wage rate. The impact of unemployment and long-term unemployment is considered. Empirical results show that the effect of previous employment on the wage rate is generally insignificant. Both short-term and long-term unemployment appear to have a significant negative impact. Micro-studies reveal that both firmspecific and aggregate variables play a role in wage determination.