A payroll tax is imposed on two types of labor: welders and machinists. In the short run, the elasticity of labor supply of welders is much more elastic than the elasticity of labor supply of machinists. Which of the following is true?

Question

Quizplus · Accepted Answer

When the supply of labor is more elastic, workers can more easily leave the job for alternatives, reducing the burden of the tax they bear. Since welders have a more elastic labor supply, they can more easily avoid the tax, shifting the burden to machinists, who have a less elastic labor supply and thus bear a larger share of the payroll tax in the short run.

A Payroll Tax Is Imposed on Two Types of Labor