LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Question
Chapter 4, Problem 2P
To determine
The group that bears the additional burden of an increase in payroll tax in the United States.
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Who should pay the tax? The following graph gives the labor market for laboratory aides in the imaginary country of Paideia. The equilibrium hourly wage is $10 , and the equilibrium number of laboratory aides is 150 .
Suppose the federal government of Paideia has decided to institute an hourly payroll tax of $4 on laboratory aides and wants to determine whether the tax should be levied on the workers, the employers, or both (in such a way that hay the tax is collected from each party).
Use the graph input tool to evaluate these thret proposal5; Entering a number into the Tax Levied on Employers feld (inibialy set at adro dallars per hour) shilts the demand curve down by the amount you enter, and entering a number into the Tax Leviod on workers fieid (initially set at acro dollas per bour) shifts the supply curve up by the amount your enter. To determine the before-tax wage for each tar proposal, adjust the amcunt in the wage field unbil the quantity of labor supplied…
Using supply and demand analysis, show the effects a binding minimum wage in a labour market can have on wage and employment levels, VERY clearly.
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- Referred to the above graph of the labor market. The government decides to impose a wage tax as shown on the graph. If the number of workers hired after the imposition of the tax is 800 then the total amount of tax is $___arrow_forwardHow would the burden from a payroll tax be shared if the supply of labor was perfectly inelastic? Perfectly elastic?arrow_forwardConsider 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_forward
- The legislature in a state in the South passes strong "right-to-work" laws that make it very difficult for unions to organize workers, so the wage is always equal to the market-clearing value. Except for this difference in legislation, the northern and southern states are very similar.The initial position of a supply-and-demand graph corresponds to the initial labor market condition in the southern state before the labor union negotiated the new, higher wage for workers in the northern state.Suppose that after the wage goes up in the northern state, some workers in the northern state lose their jobs and decide to move to the southern state. Which of the following groups are better off as a result of the union action in the northern state? (select all that apply) a) The original workers in the southern state b) Workers in the northern state employed at the union wage c) Employers in the northern state d) Workers who find new jobs in the southern statearrow_forwardSuppose a tax on wages is passed to finance a government program. The legislation orders a tax of 12.4% on per hour wage earnings with 6.2% to be paid by employers and 6.2% to be paid by workers. Assume labor supply is more inelastic than labor demand. Under these assumptions, describe the economic burden of the tax? a.The economic burden will be fully on workers. b. The economic burden will be fully on employers. c. The economic burden will be distributed in equal amounts to workers and employers. d. The economic burden will be mostly on workers and less on employers.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_forward
- If older workers have a tax elasticity of labor supply equal to 0.55, by how much will their work activity decline when they reach the Social Security earnings test limit (.e.. wage ceiling)? Recall that the Social Security earnings test limit says that Social Security benefits will be reduced by 50 cents for every additional $1 earned after the wage ceiling. Instructions: Enter your response as a positive percentage rounded to one decimal place. Do not include a negative sign with your answerarrow_forwardon 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. WAGE (Dollars per hour) 20 18 16 14 12 10 8 0 Supply 0 10 20 30 40 50 60 70 80 90 100 LABOR (Number of workers) Tax Proposal Demand D-Tax Levied on Employers (Dollars per hour) 2 0 1 Graph Input Tool Market for Laboratory Aides Wage (Dollars per hour) Labor Levied on Workers (Dollars per hour) 0 2 1 Demanded (Number of workers) Quantity Hired (Number of workers) Demand…arrow_forwardThe following graph gives the labor market for laboratory aides in the imaginary country of Episteme. The equilibrium hourly wage is $10, and the equilibrium number of laboratory aides is 250. Suppose the federal government of Episteme has decided to institute an hourly payroll tax of $4 on laboratory aides and wants to determine whether the tax should be levied on the workers, the employers, or both (in such a way that half the tax is collected from each party). Use the graph input tool to evaluate these three proposals. Entering a number into the Tax Levied on Employers field (initially set at zero dollars per hour) shifts 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.…arrow_forward
- The following graph gives the labor market for laboratory aides in the imaginary country of Sophos. The equilibrium hourly wage is $10, and the equilibrium number of laboratory aides is 200. Suppose the federal government of Sophos has decided to institute an hourly payroll tax of $2 on laboratory aides and wants to determine whether the tax should be levied on the workers, the employers, or both (in such a way that half the tax is collected from each party). Use the graph input tool to evaluate these three proposals. Entering a number into the Tax Levied on Employers field (initially set at zero dollars per hour) shifts 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…arrow_forwardThe following graph shows the labor market for research assistants in the fictional country of Universalia. The equilibrium wage is $10 per hour, and the equilibrium number of research assistants is 250. Suppose the government has decided to institute a $4-per-hour payroll tax on research assistants and is trying to determine whether the tax should be levied on the employer, the workers, or both (such that half the tax is collected from each side). Use the graph input tool to evaluate these three proposals. Entering a number into the Tax Levied on Employers field (initially set at zero dollars per hour) shifts 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…arrow_forwardSuppose demand for labour is given by: l=-50w+450 and supply is given by l=100w, where l represents the number of people employed and w is the real wage rate per hour. a) What will be the equilibrium levels for w and l in this market? b. Suppose the government wishes to increase the equilibrium wage to $4 per hour by offering a subsidy to employers for each person hired. How much will this subsidy have to be? What will be the new equilibrium level of employment be? How much total subsidy will be paid? c. Suppose instead that the government declared a minimum wage of $4 per hour. How much labour would be demanded at this price? How much unemployment would there be? d. Graph the results.arrow_forward
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