Because a tax on labor makes labor more expensive and raises the marginal cost of hiring workers, it follows that:

Question

Quizplus · Accepted Answer

By raising the marginal cost of hiring workers, a tax on labor makes employers less willing to hire new workers or keep current workers, leading to an increase in unemployment. Nominal wages may or may not rise, and real wages may increase or decrease depending on the magnitude of the tax and the overall effect on the labor market. Therefore, the correct answer is B, as it is the most direct consequence of a tax on labor.

Because a Tax on Labor Makes Labor More Expensive and Raises