Insiders versus Outsiders

he insider-outsider theory examines the behavior of economic agents in markets where some participants have more privileged positions than others. Incumbent workers in the labor market, the "insiders," often enjoy more favorable employment opportunities than the "outsiders." The reason for this disparity is that firms incur labor turnover costs when they replace insiders by outsiders. In practice, the distinction between insiders and outsiders is a matter of degree.