Do unions raise wages – or just taxes?

May 21, 2002

Free Market Foundation

Union officials often contend that higher levels of unionism benefit workers who are not union members because wages are higher for both union and non-union workers where unions are stronger. However, research shows that strong unions do not raise living standards, but are associated with higher tax rates.

The latest national figures from the U.S. Bureau of Labour Statistics show union members earned 17.5 percent more than those who are not members or $17.85 per hour for union members compared to $15.19 per hour for non-members.

But excluding public employees from the calculation, the private sector union wage differential is just 13.7 percent.

Moreover, according to a state-by-state cost of living comparison by the American Federation of Teachers (AFL-CIO) that is generally regarded as accurate, after adjusting for the cost of living, the difference between average weekly earnings in states with high and low rates of union membership almost disappears.

Average weekly earnings in High Union states are just one dollar more than in Low Union states $613 compared to $612.

However, the average level of state and local taxes in the High Union states is higher at 10.6 percent, compared to 9.8 percent in the Low Union states.

Adjusting for the cost of living and the level of state and local taxes, average weekly earnings in the High Union states are actually lower than in the Low Union states an average of $548 in the High Union states compared to $551 in the Low Union states.

Looking at it another way, the average level of unionism in the High Tax states is 14.6 percent of the workforce compared to 10.2 percent in the Low Tax states. So there is an apparent correlation between a high level of unionism and higher taxes.

Source: David Y. Denholm, Does Unionism Mean Higher Earnings or Higher Taxes? Government Union Review and Public Policy Digest, December 2001.

For more on Unions & Government Spending http://www.ncpa.org/iss/gov/

RSA Note:
South Africans cannot fail to be amused by a study that describes a 14.6 percent level of unionism as High Level (when compared to South Africas) and which does a detailed study of the differences between that level and a Low Level of 10.2 percent. However, what is significant is the finding that even these minor differences in the levels of unionism have an effect on net earnings, higher levels of unionism acting to depress net earnings. The higher taxes are no doubt the consequence of higher civil servant salaries, including the salaries of teachers.

Eustace Davie, Director, FMF.

FMF Policy Bulletin/14 May 2002