Do Unions Reduce Discrimination?: A Model of Nash Bargaining Between a Union and an Employer with Discriminatory Tastes

Whilst there is a significant empirical literature on the effects of unions on pay discrimination, there is little by way of a rigorous theoretical treatment of this important topic. This is particularly surprising given the many recent developments in the economic theory of the trade union. This paper offers a theoretical framework which integrates models of union-firm bargaining with the analysis of employer discrimination. Within the class of right-to-manage models of union-firm bargaining, we consider the bargain between a rent-maximising union and a utility-maximising employer with discriminatory tastes. Our main conclusion is that only weak conditions have to be satisfied for the presence of a union with bargaining power over the wage rates paid by a discriminating firm to reduce the wage gap between the different worker groups and, in the right-to-manage model, for the wage gap to fall monotonically as union bargaining power increases. Amongst other results, we also find that as employer discrimination increases, the monopoly union bargains a higher wage for the group against which the firm is discriminating.