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


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  • Minas Vlassis

    (Department of Economics, University of Crete, Greece)

  • Nick Drydakis

    (Department of Economics - University of Crete, Greece)


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.

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Bibliographic Info

Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0614.

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Length: 26 pages
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Handle: RePEc:crt:wpaper:0614

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Keywords: Unions; Oligopoly; Discriminatory Wage Contracts; Antidiscrimination Policy;

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  1. Emmanuel Petrakis & Minas Vlassis, 2004. "Endogenous wage bargaining institutions in oligopolistic sectors," Economic Theory, Springer, vol. 24(1), pages 55-73, 07.
  2. Hinks, T. & Watson, D., 1999. "A Multinominal Logit No-Discrimatory Approach to Estimating Racial Wage and Occupational Discrimation," Papers, Middlesex University - School of Economics 67, Middlesex University - School of Economics.
  3. Swinton, David H, 1977. "A Labor Force Competition Theory of Discrimination in the Labor Market," American Economic Review, American Economic Association, vol. 67(1), pages 400-404, February.
  4. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 92(367), pages 576-95, September.
  5. Barbara R. Bergmann & William R. Krause, 1972. "Evaluating and forecasting progress in racial integration of employment," Industrial and Labor Relations Review, ILR Review, Cornell University, ILR School, vol. 25(3), pages 399-409, April.
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