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Does Unionism Mean Higher Earnings or Higher Taxes?
On several recent occasions union officials have contended that higher levels of unionism benefit workers who are not union members because where unions are stronger wages are higher for both union and nonunion workers.
In the state of Oklahoma they are preparing to vote on a referendum on a Right to Work law, a law that would make it illegal to require a person to belong to or support a union as a condition of employment. One of the arguments union officials have used to try to persuade voters to reject this referendum is that even if they aren't union members, they benefit from strong unions because where unions are strong everyone's wages are higher.
Recently, the Ninth Circuit Court of Appeals rejected a union argument that it should be allowed to force nonmembers to pay for union organizing expenses. One of the arguments the unions raised in support of their position was that nonmembers benefited from union organizing because where there are more union members wages were higher.
So, the question of whether high levels of unionism results in generally higher wages is worth examining because, in addition to its economic significance, it has both political and legal consequences.
Does unionism mean a higher wage? On the surface it would seem that union members receive higher wages than their nonunion counterparts.
The latest national figures from the Bureau of Labor Statistics show union members earning 17.5 percent more than those who are not members - an average of $17.85 for union members compared to $15.19 for nonmembers.
But that's an incomplete view of the question. The Union Wage Differential, the difference between the average union wage and nonunion wage, is strongly influenced by occupation and geography. Some occupations are higher paid than others, whether union or not. In some areas of the country, generally high cost of living areas, earnings are higher, whether union or not. Higher levels of unionism in high paid occupations in high wage areas could create an apparent benefit to unionism that had little, if anything, to do with whether the employees were represented by a union.
The differential is also influenced by the size and type of employer. Larger firms generally pay better than smaller ones. Larger firms are also more likely to be unionized. No data is presently available on the degree to which this impacts the differential, but there is little doubt that some portion of the difference is due to the size of the employer rather than to the fact that its employees are represented by a union.
The high level of unionism in the public sector combined with the fact that average earnings for public employees are significantly higher than those of employees in the private sector also puts upward pressure on the union wage differential. In 2000, 37.5 percent of all public employees were union members compared to only 9.0 percent in the private sector. Average earnings for public employees were $17.23 compared to $15.23 in the private sector, a difference of 13.1 percent. When public employees are excluded from the calculation, the union wage differential drops from 17.5 to 13.7 percent.
This differential remained fairly constant for quite some time, fluctuating between 24 and 26 percent, but in the mid 1990's it began to collapse, falling from 25.8 percent in 1994 to 17.5 percent in 2000.
This is most notable in a highly unionized industry, manufacturing, where, according to the most recent figures from the Bureau of Labor Statistics, nonunion manufacturing employees earn an average of $16.80 an hour compared to $16.37 for their union counterparts. No, that's not a typographic error; manufacturing workers who are not represented by a union earn more than their unionized counterparts.
So, while it is clear that union members have higher earnings than nonunion employees, the extent to which this difference is a result of occupation, geography and the employer or due to unionism is unclear. But that isn't the underlying claim of advocates for forcing employees to join and support unions and for forcing nonmembers to pay for union organizing expenses.
Does a high level of unionism result in generally higher wages? In other words, is a high level of union membership of benefit to others who are not union members?
On the surface, it would appear so. Table 1 shows average weekly earnings and the extent to which the workforce was unionized in each state in 2000. At this level, even though there are some very obvious exceptions, there seems to be a strong correlation between unionism and higher wages.
Nationally, 13.5 percent of the workforce belongs to labor unions. In 24 states the level of unionism is above average (High Union) and in 26 states it is below average (Low Union). In the High Union States average weekly earnings are $634, while in the Low Union states the average was $574, a difference of $60 or 10.4 percent.
To accurately compare earnings among states, however, differences in the cost of living must be taken into account. After all, if the cost of living is greater in a highly unionized state like New York than it is in a less unionized state like North Carolina an employee making less money might actually have a higher standard of living.
The American Federation of Teachers, AFL-CIO, publishes a state-by-state cost of living comparison that is generally regarded as accurate.
Once adjusted for the cost of living, the difference between average weekly earnings in High Union and Low Union states almost disappears. Average weekly earnings in High Union states are $613, compared to $612 in Low Union states. Table 2
And, as we are all painfully aware, the cost of living isn't everything. In fact, comparative cost of living calculations don't take state and local rates of taxation into account. The Tax Foundation publishes an index of state and local taxes as a percent of income. When the cost of living and the level of state and local taxes are taken into account, 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. Table 3
Since the level of state and local taxes destroys even the small earnings advantage that might be attributed to a high level of unionism, it is worth asking whether there is a correlation between high levels of unionism and high levels of taxation.
The rate of state and local taxes as a percent of income ranges from 13.3 to 6.8. Twenty-four states have rates above 10 percent (High Tax), while 26 states have rates of 10 percent or less (Low Tax). The average level of state and local taxes in the High Union states is 10.6 percent, compared to 9.8 percent in the Low Union states. Looking at it another way, the average level of unionism in the High Tax states is 14.6 percent compared to an average level of unionism in the Low Tax states of 10.2 percent. So there is an apparent correlation between a high level of unionism and higher taxes.
But, because the difference between the level of taxation in the lowest High Tax state and the highest Low Tax state is very slight, this may not be an accurate reflection of union influence. Comparing the level of unionism in the top ten High Tax states and the bottom ten Low Tax states gives a clearer indication. In the top ten High Tax states the average level of unionism is 16.2 percent compared to 10.2 percent in the bottom ten Low Tax states.
*Source: Tax Foundation
Yet, another way to examine whether high levels of unionism have an influence on higher levels of taxation is to look at the voting record on taxing and spending of state delegations to Congress. The National Taxpayers Union (NTU) complies the most complete and sophisticated systems for analyzing Congressional voting records on tax and spending issues. It awards letter grades for each member of Congress that can be translated to percentage grades for the purpose of comparing the records of state delegations.
A high grade reflects a voting record generally favoring lower taxes and spending, while a low grade indicates a voting record favoring higher taxes and spending. The available information about levels of unionism doesn't extend to the Congressional District level and in some states levels of unionism differ greatly among Congressional Districts. That makes the scores of the state delegations to the U.S. Senate the most reliable indicator of union influence on these scores.
*Source: Tax Foundation
The average NTU grade for Senate delegations is a C-. The average NTU grade for U.S. Senators from High Union states is a D compared to an average grade for Senators from Low Union states of C+. So there appears to be a correlation between unionism and a higher propensity to tax and spend.
Another way to look at this is to compare the level of unionism in the states with High NTU grades to the level of unionism in states with Low NTU grades. There are 21 states with above average grades (High NTU) and 29 states with below average grades (Low NTU). The average level of unionism in the High NTU states is 10.7 percent, while the average level of unionism in the Low NTU states is 13.5 percent.
Since there is only a slight difference between the grade of the lowest High NTU state and grade of the highest Low NTU state, comparing the level of unionism in the highest and lowest ten states in each category gives a better view of the influence on unionism on these grades. In the Top 10 High NTU states the average level of unionism is 8.5 percent compared to 15.5 percent in the Lowest 10 Low NTU states.
Clearly, the level of unionism has a pronounced influence on how members of the U.S. Senate vote on taxing and spending issues and the more unionized a state the more likely they are to vote for higher taxes and spending.
There is a difference between union and nonunion earnings but that difference is collapsing. The union wage differential is influenced by geography, occupation, the size and type of employer and unionism. The extent to which each of these factors influences the difference is unclear but it is clear that union representation has very little to do with it.
There is no apparent relationship between high levels of unionism and generally higher earnings. Once adjusted for the cost of living and taxation, real earnings in states with low levels of unionism are actually higher than in states with high levels. There is a strong relationship between high levels of unionism and higher levels of taxation.
The relationship between high taxes and high levels of unionism is more than likely due to the fact that, despite their decline in membership, unions are a very powerful political influence and they are generally advocates of big government.