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

Listed author(s):
  • 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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Paper provided by University of Crete, Department of Economics in its series Working Papers with number 0614.

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Length: 26 pages
Date of creation:
Handle: RePEc:crt:wpaper:0614
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  1. Barbara R. Bergmann & William R. Krause, 1972. "Evaluating and Forecasting Progress in Racial Integration of Employment," ILR Review, Cornell University, ILR School, vol. 25(3), pages 399-409, April.
  2. Emmanuel Petrakis & Minas Vlassis, 2004. "Endogenous wage bargaining institutions in oligopolistic sectors," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 24(1), pages 55-73, 07.
  3. Timothy Hinks & Duncan Watson, 2001. "A multinomial logit nondiscriminatory approach to estimating racial wage and occupational discrimination," Applied Economics, Taylor & Francis Journals, vol. 33(5), pages 605-612.
  4. 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.
  5. Oswald, Andrew J, 1982. "The Microeconomic Theory of the Trade Union," Economic Journal, Royal Economic Society, vol. 92(367), pages 576-595, September.
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