Suppose the payroll tax is increased.For any given labor demand,the greater the elasticity of labor supply:

Question

Quizplus · Accepted Answer

When the elasticity of labor supply is greater, workers are more responsive to changes in the wage rate. Therefore, an increase in the payroll tax, which effectively reduces the net wage rate, will lead to a smaller decline in the net wage rate because workers are more willing to leave or enter the market based on these changes. However, this responsiveness also means that employment is more sensitive to wage changes, leading to a greater decline in employment as workers choose not to work or employers hire less due to the increased cost of employment.

Suppose the Payroll Tax Is Increased