Corporate taxes and union wages in the United States

Abstract

This paper evaluates the effect of US state corporate income taxes on union wage premiums. American workers who belong to unions are paid more than their non-union counterparts, and this difference is greater in low-tax locations, possibly 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 was associated with a 0.17 percent higher union wage premium, suggesting that workers in a fully unionized firm capture roughly 31 percent of the benefits of low tax rates. By 2019, state tax rates appear to have little effect on the union wage premium, reflecting changes in union power and the opportunity cost of capital.