Seniority and Distribution in a Two-Worker Trade Union.

Unlike existing models that rely heavily on assumption regarding unions' distributional preferences, the authors present a simple model in which union seniority-layoff rules and rising seniority-wage profiles result from optimal price discrimination against the firm. Surprisingly, even when cash transfers among union members are ruled out, unions' optimal seniority-wage profiles are likely to be completely unaffected by their distributional preferences because of a kink in the utility-possibility frontier. This suggests that the simple technology of price discrimination may play a key role, hitherto unappreciated, in explaining union policies that affect the relative well-being of different union members. Copyright 1989, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.