Which of the following factors determines the extent of the fall in the net-of-tax wage rate after the imposition of a payroll tax?
A)The productivity of the employees
B)The efficiency wage in the labor market
C)The elasticities of supply and demand
D)The minimum wage imposed by the government

Question

Quizplus · Accepted Answer

The extent of the fall in the net-of-tax wage rate after the imposition of a payroll tax is determined by the elasticities of supply and demand. If the supply of labor is elastic, then the burden of the payroll tax will be borne primarily by the workers in the form of lower wages, as employers can hire the same number of workers even with a higher tax burden. If the demand for labor is elastic, then the burden of the payroll tax will be borne primarily by employers in the form of lower profits, as they will reduce their demand for labor when faced with a higher tax burden. The other factors listed (productivity of employees, efficiency wage, and minimum wage) may impact the wage rate, but they are not specifically related to the imposition of a payroll tax.

Which of the Following Factors Determines the Extent of the Fall