In the insider-outsider theory of unemployment, those already employed can prevent firms from hiring unemployed workers willing to work at a lower wage.

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According to insider-outsider theory, those already employed (insiders) benefit from collective bargaining and job security, which can prevent firms from hiring unemployed workers (outsiders) willing to work for lower wages. This results in higher unemployment rates among outsiders.

In the Insider-Outsider Theory of Unemployment, Those Already Employed Can