Cooperation,job security,and wages in a dual labor market equilibrium

By introducing cooperation among individuals working within a firm, this paper constructs a model generating a dualistic competitive equilibrium with differentials in wages and job security in an industry with product demand uncertainty. Primary firms offer high job security to promote cooperation and achieve high productivity. Secondary firms merely take advantage of ability to adjust employment. Wage differentials arise because cooperation is more productive among members of the same social group and thus different groups of workers face different labor demand. In contrast to the Arrow-Debreu economy, firms making long-term decisions and those making short-term decisions coexist in the equilibrium.