Corporate Social Responsibility and Wage Discrimination in Unionized Oligopoly

The European labour markets are characterized by the existence of trade unions with extensive coverage whereas wage contracts are typically determined through decentralized firm-union bargaining. On the other hand, as it particularly refers to migrant and ethnic minority groups, equally-skilled workers often face lower reservation wages. We argue that these facts may lead unions to opt for discriminatory wage contracts across groups of employees. At the same time firms may nonetheless opt for non-discrimination in wages insofar as they would profitably “advertise” it as an exertion of corporate social responsibility (csr). We show that, if the consumers’ valuation of non-discrimination is sufficiently high, the latter strategies would as well be compatible with the unions’ best interest in the equilibrium. Otherwise, we propose that to efficiently combat wage discrimination policy makers should instead of firms undertake csradvertisement in the event of non-discrimination. Yet, such an antidiscrimination policy would always entail a net loss in social welfare.