Wage compression hinders tax policy's impact on labor allocation.
Unions don't like big wage differences among their workers, so they make wages more equal. This can mess up how resources are used in the economy. If the wage differences are small, changing taxes can fix this problem, but it might not help with making sure money is spread out fairly. If the wage differences are big, taxes won't do much to fix the resource problem, but they can help with making sure money is shared more evenly.