According to the neoclassical model, what would not result from the government levying a tax on firms for each worker the firm lays off?
A) Firms would be less likely to lay off workers.
B) Firms would be less likely to hire workers.
C) Moral hazard would encourage workers to not work as hard as before.
D) The long-run unemployment rate would decrease.
E) Unemployed workers would remain unemployed for longer periods of time.

Question

Quizplus · Accepted Answer

The neoclassical model suggests that taxes on firms for laying off workers would make layoffs less attractive, potentially leading to fewer layoffs (A) and possibly making firms more cautious about hiring (B) due to the increased cost of future layoffs. It could also lead to moral hazard, where workers might not work as hard knowing it's more costly for the firm to lay them off (C), and could result in unemployed workers remaining unemployed for longer if firms are more hesitant to hire (E). However, it does not necessarily imply that the long-run unemployment rate would decrease, as the model focuses on how such taxes affect behavior related to layoffs and hiring, rather than directly influencing the overall unemployment rate.

According to the Neoclassical Model, What Would Not Result from the Government