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A Union-Oligopoly Model of Endogenous Discrimination:Should it be wage discrimination taxed or discriminated employment subsidized?

Minas Vlassis () and Nick Drydakis ()

No 614, Working Papers from University of Crete, Department of Economics

Abstract: In the context of a homogenous good industry with Cournot rivalry and technological asymmetries among firms, equally skilled workers can be grouped according to their different reservation wages. Under decentralized firm-union bargaining, we show that unions may offer to firms the option to discriminate wages across such groups of employees and, by that, to achieve cost sub-additivity in the equilibrium. We subsequently propose that to combat the emerging wage discrimination a benevolent policy maker may activate either taxation, or subsidization, policy. Interestingly, while the former policy always entails a welfare loss, a welfare gain may emerge under the latter policy, relative to the no policy-wage discrimination status quo. Thus our findings suggest that the E.U- antidiscrimination directives may prove to be effective on both egalitarian and efficiency grounds.

Keywords: Unions; Oligopoly; Discriminatory Wage Contracts; Antidiscrimination Policy (search for similar items in EconPapers)
JEL-codes: J50 J51 J31 (search for similar items in EconPapers)
Pages: 26 pages
New Economics Papers: this item is included in nep-rmg
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