Refer to the labor market in Figure 33.5. Suppose that the government imposes a payroll tax on employers in this market. How much will the government collect in tax receipts for every worker hired?

Question

Quizplus · Accepted Answer

The payroll tax will increase the cost of hiring a worker for the employer by the amount of the tax, which is $1 per hour. As a result, the new equilibrium wage rate will be $7 per hour. The tax revenue per worker hired is equal to the tax multiplied by the quantity of workers hired, which is $3 per hour ($1 tax x 3 workers). Therefore, the government will collect $3 in tax receipts for every worker hired.

Refer to the Labor Market in Figure 33