A payroll tax increases the cost of labor for employers, which leads to an increase in the nominal cost of labor. It does not shift the labor supply or demand curves, nor does it necessarily cause the net wage to increase (it could lead to a decrease if the increase in cost is passed on to employees).

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A Payroll Tax

Question 90

Multiple Choice

A payroll tax

A) Shifts the labor supply curve to the right.
B) Shifts the labor demand curve to the right.
C) Causes the net wage to increase.
D) Increases the nominal cost of labor.

Correct Answer: