The Relationship Between Union Membership and Net Fiscal Impact

• Published date: 01 January 2019
• DOI: http://doi.org/10.1111/irel.12224
• Author: José Pacas,Aaron Sojourner
• Date: 01 January 2019

The Relationship Between Union Membership

and Net Fiscal Impact

*

AARON SOJOURNER and JOS



E PACAS

This paper develops the first evidence on how individuals’union membership sta-

tus affects their net fiscal impact, the difference between taxes they pay and cost

of public benefits they receive, enriching our understanding of how labor relations

interacts with public economics. Current Population Survey data between 1994

and 2015 in pooled cross-sections and individual first-difference models yield evi-

dence that union membership has a positive net fiscal impact through the worker-

level channels studied.

Introduction

This paper offers the first evidence on whether union membership causes

workers to use less public benefits and to pay more taxes. Prior work has

neither tested nor measured effects on these outcomes, although findings of

union wage and benefit premiums gives reason to expect this. The litera-

ture’s evidence about effects of unionization on wages and benefits is insuf-

ficient to understand the effect of unionization on taxes paid or benefits

received. First, higher hourly compensation might reduce hours and not

increase earnings. Second, tax and public-benefit effects depend on interac-

tions of workers’earnings with household characteristics and with tax and

benefit policy. A union-induced 10 percent wage increase will have differ-

ent tax and benefit implications for a worker earning near the poverty line

versus one earning at the median, for a childless worker versus with one

with three children, and for a worker in California versus Mississippi. For

example, additional earnings will increase the amount of Earned Income

Tax Credit (EITC) a worker collects if her base level of income and family

structure are such that the EITC is phasing in but will decrease the EITC

amount if the EITC is phasing out.

*The authors’affiliations are, respectively, University of Minnesota, Minneapolis, Minnesota. E-mail:

asojourn@umn.edu; and University of Minnesota, Minneapolis, Minnesota. E-mail: pacas002@umn.edu.

The authors thank John Budd, Brigham Frandsen, Greg Leiserson, Joseph Ritter, Elizabeth Davis, session

participants at the LERA and SOLE annual meetings, and attendees of the Urban Institute seminar series for

helpful feedback. They also thank the Minnesota Population Center for assistance with editing, as funded

under grant #P2C HD041023.

INDUSTRIAL RELATIONS, DOI: 10.1111/irel.12224. Vol. 58, No. 1 (January 2019). ©2018 The Regents of

the Univers ity of Califo rnia Published by Wiley Periodicals, Inc., 350 Main Street, Malden,

MA 02148, USA, and 9600 Garsington Road, Oxford, OX4 2DQ, UK.

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Through union membership, many workers raise their labor compensation in

earnings and employer-provided fringe benefits. The positive effect of union

membership on labor earnings is especially pronounced for workers who

would otherwise have very low earnings. Frandsen (2012) followed workers

after close union elections and found that unionization strongly raises post-

election earnings for workers who were below the twenty-fifth percentile of

the pre-election earnings distribution but had no effect for workers who were

at higher percentiles. Frandsen’s focus on earnings, rather than wages,

accounts for any reduction in hours induced by higher hourly compensation.

He also followed workers even if they left the establishment and counted earn-

ings as zero if they did not earn from any employer, so this also accounts for

any reductions in employment driven by unionization.

Union membership also raises workers’likelihood of having private,

employer-provided health insurance and other benefits (Buchmueller, DiNardo,

and Valletta 2002; Freeman 1981; Freeman and Medoff 1984; Knepper 2018).

Employer expenditures on fringe benefits are 2.5 times higher per hour worked

for unionized jobs than for nonunion jobs and, as with earnings, the effects of

unions on benefits appear larger in lower-paying establishments (Budd 2005).

Freeman et al. (2015) provided evidence that the union wage premium shifts

some workers up into middle-class incomes and that the decline of unionism

contributes to the shrinking middle class. This latter paper focuses on the

effect of union density in a community rather than of individual worker union

membership, i.e., union gains rather than union gaps in the language of Lewis

(1986). We focus on union gaps, the effect of individual union membership

rather than of aggregate union density.

Political leaders, activists, and media have speculated that unionization

may have a positive net fiscal impact on public balance sheets by both (1)

reducing public-benefit use and (2) increasing tax payments by workers.

Low-wage workers have been pushing for improvements in working condi-

tions and for unionization through the OUR Walmart, Fast Food Forward,

and the Fight for 15 campaigns, often criticizing nonunion employers’low

pay and meager benefits for making working families reliant on public insur-

ance programs. U.S. Representative-elect Alan Grayson spoke with Walmart

workers in his community about their right to join a union, arguing that they

are paid so little, “they often seek government programs for help”(Sanders

2012). McDonald’s central human-resources department points out to their

employees that they may qualify for food stamps and Medicaid (Eidelson

2013). This issue is not isolated to retail. For instance, Jacobs et al. (2016)

found that a third of frontline manufacturing production workers are enrolled

in at least one public safety net program and that this is primarily a result of

low wages.

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