LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Chapter 4, Problem 10P
To determine
The effect of a payroll tax of $2 on wages, employment, and
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Assume that 1,000 workers are employed by the University in jobs paying $10 per hour. After a rise in the minimum wage to $12 per hour, only 900 will be employed. Which statement is true about this example?
Overall, the total amount of earnings received by workers has increased.
At a wage of $12, the total number of people wanting to work but not getting hired will be 100.
Labor demand (the quantity of workers demanded at various prices) appears to be elastic
on Employers field (initially set at zero dollars per nour) shirts the demand curve down by the
amount you enter, and entering a number into the Tax Levied on Workers field (initially set at zero
dollars per hour) shifts the supply curve up by the amount you enter. To determine the before-tax
wage for each tax proposal, adjust the amount in the Wage field until the quantity of labor
supplied equals the quantity of labor demanded. You will not be graded on any changes you make
to this graph.
Note: Once you enter a value in a white field, the graph and any corresponding amounts in each
grey field will change accordingly.
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LABOR (Number of workers)
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hour)
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Market for Laboratory Aides
Wage
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Assume that the supply of low-skilled workers is fairly elastic, but the employers’ demand for such workers is fairly inelastic. If the policy goal is to expand employment for low-skilled workers, is it better to focus on policy tools to shift the supply of unskilled labor or on tools to shift the demand for unskilled labor? Sketch a graph to help compare and contrast the two options.
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- Consider the labor market. Suppose that the supply of labor is = 2 + H/2 and the demand for W=52−2H. Where W is wage and is hours worked. Now suppose that the government levies a $5 per hour payroll tax on buyers of labor (firms). Determine the worker (supplier) and firm (buyer) tax burdens. Determine the deadweight loss associated with this payroll tax.arrow_forwardIf older workers have a tax elasticity of labor supply equal to 0.25, by how much will their work activity decline when they reach the Social Security earnings test limit? (Recall that the Social Security earnings test limit is 50 percent. Assume explicit taxes of 20 percent below that limit. Use the midpoint method.) Instructions: Enter your response as a positive percent rounded to one decimal place. Do not include a negative sign (-) with your answer.arrow_forwardSuppose that Congress passes a law requiring employers to provide employees some benefit (such as healthcare) that raises the cost of an employee by $4 per hour. Assume that firms were not providing such benefits prior to the legislation. On the following graph, use the green line (triangle symbol) to show the effect this employer mandate has on the demand for labor. Wage (Dollars per hour) 20 18 16 14 12 10 8 6 4 2 0 Demand 4 5 6 7 Quantity of Labor (Thousands) 0 1 2 3 8 Supply 9 10 New Demand New Supply ++ Equilibrium Before Law Equilibrium After Law (?)arrow_forward
- Assume that the supply of low-skilled workers is fairly elastic, but the employers’ demand for such workers is fairly inelastic. If the policy goal is to expand employment for low-skilled workers, is it better to focus on policy tools to shift the supply of unskilled labor or on tools to shift the demand for unskilled labor? What if the policy goal is to raise wages for this group? Explain answers to include supply and demand diagrams? Name some factors that can cause a shift in the demand curve in labor markets? In addition please address the policy goal of raising wages?arrow_forwardIn a city where the equilibrium hourly wage for unskilled, entry-level workers is $11, the U.S. federal minimum wage of $7.25 will have no effect. It is a non-binding price floor. will have no effect. It is a non-binding price ceiling. will increase the equilibrium wage from $11 to something higher. will bring the equilibrium wage from $11 down to $7.25. will discourage unskilled workers from entering the labor market.arrow_forwardThe market wage in industries A and B are $10/hour. The government raises the minimum wage from $8/hour to $12/hour. If the demand for labor is more elastic in industry B than in industry A: a) We would expect decreases in employment in both industries, but the losses will be greater in industry B. b) We would expect a decrease in employment in industry B, but not in industry A. c) We would expect a decrease in employment in industry A, but not in industry B. d) We would expect decreases in employment in both industries, but the losses will be greater in industry Aarrow_forward
- Use the black point (plus symbol) to indicate the equilibrium wage and level of employment before this law, and use the grey point (star symbol) to indicate the equilibrium wage and level of employment after this law is implemented. True or False?????: Employers are made worse off but employees are made better off by this law. Suppose that, before the mandate, the wage in this market was $1 above the minimum wage. In this case, the wage rate with the employer mandate will be _$__ per hour, which will lead to _increase/decrease/nochange_ in the level of employment and _increase/decrease/nochange_ in the level of unemployment. Now suppose that workers do not value the mandated benefit at all. Which of the following statements are true under this circumstance? Check all that apply. Employers are worse off than before the mandated benefit. The equilibrium quantity of labor will rise. The supply curve of labor doesn't shift at all.…arrow_forwardBy drawing a diagram of labor demand and labor supply curves, illustrate how workers and firms share the benefits of employment subsidy. Employers can receive $t from the government for each worker they hire. Suppose that labor supply is perfectly inelastic while labor demand is very elastic (but not perfectly elastic). Who receives relatively more benefit? Or does one party receive the entire benefit? If so, who? Explaiarrow_forwardLabor demand for low-skilled workers in the United States is w = 24 - 0.1 E where E is the number of workers (in millions) and w is the hourly wage. There are 120 million domestic U.S. low-skilled workers who supply labor inelastically. If the United States opened its borders to immigration, 20 million low-skill immigrants would enter the United States and supply labor inelastically. What is the market-clearing wage if immigration is not allowed? What is the market-clearing wage with open borders? How much is the immigration surplus when the United States opens its borders? How much surplus is transferred from domestic workers to domestic firms?arrow_forward
- In the United States, labor supply tends to be inelastic relative to labor demand, and according to law, payroll taxes are essentially assessed evenly between workers and firms. Given the above situation, are workers or firms more likely to bear the additional burden of an increased payroll tax in the United States? Could this burden be shifted to the firms by assessing the increase in payroll taxes on just firms rather than having firms and workers continue to be assessed payroll taxes equally?arrow_forwardIn an unregulated, competitive market we could calculate consumer surplus if we knew the equations representing supply and demand. For this problem assume that supply and demand are as follows: Supply P = 4 + 0.116Q Demand P = 25 - 0.10Q where P represents unit price in dollars and Q represents the number of units sold each year. Calculate the annual value of aggregate consumer surplus.arrow_forwardThe demand curve for gardeners is G(D) = 19 – W, where G = the numberof gardeners, and W = the hourly wage. The supply curve is G(S) = 4 + 2 W . a. Suppose the town government imposes a $2 per hour tax on all gardeners. Indicate the effect of the tax on the market for gardeners.What is the effect on the equilibrium wage and the equilibrium number of gardeners hired? How much does the gardener receive? Howmuch does the customer pay? How much does the government receiveas tax revenue?arrow_forward
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