The substitution effect of Social Security taxes causes some people to work more hours.

Question

Quizplus · Accepted Answer

The substitution effect of Social Security taxes is a reduction in the reward for working, which leads to a decrease in the quantity of labor supplied. This is because when a person faces higher taxes, the net wage they receive is lower, which makes leisure time more attractive than working. Therefore, Social Security taxes generally lead to a reduction in the number of hours worked, rather than an increase.

The Substitution Effect of Social Security Taxes Causes Some People