Internal and External Forces in Sectoral Wage Formation: Evidence from the Netherlands.

The purpose of this paper is to investigate the relative importance of internal (sector-specific) and external (labor 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 persistence, 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. Copyright 1996 by Blackwell Publishing Ltd