Faced with a shortage of funds to pay claims, the workman's compensation systems in many states have been forced to raise the workman's compensation tax rate substantially.The tax is paid by employers.Employers have complained that they cannot afford the tax and threaten to go out of business.Assuming the supply of labor is very inelastic, one can argue that ultimately the burden of this tax actually will rest
A)mostly on workers.
B)mostly on employers.
C)about 50/50 on workers and employers, like the Social Security tax.
D)all on employers by statute.

Question

Quizplus · Accepted Answer

When the supply of labor is very inelastic, workers are less responsive to changes in wages. Therefore, if employers pass on the cost of the tax by lowering wages, workers are more likely to accept the lower wages rather than leave their jobs. This means that the economic burden of the tax falls mostly on workers, even though the tax is technically paid by employers.

Faced with a Shortage of Funds to Pay Claims, the Workman's