LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Chapter 4, Problem 5RQ
To determine
The impact of payroll tax on wages and employment.
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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 $___
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- Suppose 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 which case is the total amount of a payroll tax paid by employees through lower wages? Group of answer choices When the labor supply curve is horizontal. When the labor supply curve is vertical.. When the labor demand curve is vertical. When the labor supply curve is downward sloping at a 45-degree angle. When unemployment is widespread and the wage is above its market clearing level, a cut in employer payroll tax will Group of answer choices drive up wages but have little to no effect on employment and unemployment. increase employment, reduce unemployment, and have little effect on wages. be largely ineffective. benefit employers and have no effect on workers.arrow_forwardDescribe the impact of a payroll tax on wages and employment in a competitive industry. Why is part of the tax shifted to workers? What is the deadweight loss of the payroll t ax?arrow_forward
- Laura earns a base salary of $50,000 as an event planner and is subject to the following hypothetical income ta is considering taking on an additional wedding that will increase her income by $5,000. In order for Laura to c worth her time, it must earn her $3,000 after taxes. Please round all answers to two decimal places. What is the marginal tax rate associated with taking on this wedding? Marginal tax rate: Income $0-$10,000 $10,001-$30,000 $30,001-$50,000 $50,001+ Average tax rate: 4 What is Laura's average tax rate if the extra wedding is accepted? ves R Given the information, will Laura undertake this extra wedding? 5 7 Tax rate 5% 10% 20% 50% B T 6 % 45 % 8 9arrow_forwardPlease only answer question 3 The statutory marginal tax rate for income levels between $0 and $100,000 is 25%. The statutory marginal tax rate for income levels above $100,000 is 50%. A family with a child purchases 800 hours of childcare per year. The hourly rate for childcare was $10 in 2020. Families can deduct childcare expenditures up to $8,000. One spouse worked during the year while the other spouse did not earn income. The spouse that worked can claim a tax credit of $6,000. 1. What is the after-tax income available to the family when the spouse that worked earned $100,000 in 2020? What is the effective tax rate (taxes paid over total pre-tax income). 2. What is the after-tax income available to the family when the spouse that worked earned $200,000 in 2020? What is the effective tax rate (taxes paid over total pre-tax income). How does the after-tax price of childcare differ compared to the family with income = $100,000. 3. There is an inflation rate of 100%…arrow_forwardConsider a perfectly competitive labor market with a very inelastic supply of labor. If a payroll tax is implemented, who would bear a larger portion of the tax burden? a.Mostly by the employer. b.Mostly by the employee. c.Split fairly evenly between the employer and the employee.arrow_forward
- Impact of higher taxes on labor income from now to next 5 years.arrow_forwardMatch the term with the definition:[?] is the rate you pay on the last dollars you earned A. Average tax rate[?] is the overall rate you pay on your entire income B. Marginal tax ratearrow_forwardIn 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_forward
- The federal government currently levies a 15.3 percent payroll tax (7.65 percent on both the employer and employee) on the wages of all workers. If the demand for labor is relatively elastic when compared to the inelastic supply of labor, the burden of this tax will fall primarily on employees. fall primarily on employers. be divided equally between employees and employers. O Its impossible to tell from this information.arrow_forwardQ1 Explain with the help of a figure for a labor market what we mean by the employees paying part of a tax that is imposed on the companies that demand labor. For simplicity, you can look at a unit tax on labor. Explain in particular what determines how much of the tax is paid by the employees. Q2 a) A project has an expense of NOK 90 million today and is expected to generate a profit of NOK 200 million in 20 years. Set up the expression for the present value of the project. Use the table below to find out if projects are profitable for (i) an interest rate of 3%, (ii) an interest rate of 5% b) A preventive health measure requires an investment of NOK 100 million today, but is expected to provide an annual gain of NOK 5 million in the foreseeable future. At what interest rates are the project profitable?arrow_forwardOn a graph of the labor market, show the effects of an increase in the payroll tax.arrow_forward
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