Flattening the Tax Rate Structure, Changing the Tax Mix and Unions′ Wage Demands Available to Purchase

In the last decade there has been considerable interest in the analysis of Trade Union behaviour, but surprisingly little discussion of the effect of tax changes on wage demands. Previous analyses have been limited by the use of simple tax structures. The discussion is extended by considering a multi‐rate tax system that can easily be applied to most countries. The effect on unions′ wage demands of eliminating the top marginal tax rate, while raising VAT, is examined in detail. It is shown that this policy can be expected to lead to an increase in the wage demands of all unions, producing a once‐and‐for‐all increase in nominal wages and unemployment.