Corporate Taxes and Union Wages in the United States
This paper evaluates the effect of U.S. state corporate income taxes on union wages. American workers who belong to unions are paid more than their non-union counterparts, and this difference is greater in low-tax locations, reflecting that unions and employers share tax savings associated with low tax rates. In 2000 the difference between average union and non-union hourly wages was $1.88 greater in states with corporate tax rates below four percent than in states with tax rates of nine percent and above. Controlling for observable worker characteristics, a one percent lower state tax rate is associated with a 0.36 percent higher union wage premium, suggesting that workers in a fully unionized firm capture roughly 54 percent of the benefits of low tax rates.
The authors thank Charles Brown, David Card, Patrick Kline, and Justin McCrary for helpful comments on an earlier draft of this paper. Adam Pope provided excellent research assistance. The views expressed in this paper are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City, the Federal Reserve System, or the National Bureau of Economic Research.