Suppose that the spouse of the primary earner in the household is considering joining the labor force.The spouse cares for two children and if employed would earn $20 per hour for 40 hours per week.The total cost of child care would be $10 per hour for 50 (not 40)hours per week.Assume that the marginal tax rate on work is 50%.Assume that child care is NOT tax deductible and that child care at home is NOT imputed and taxed.What is the after-tax,after-child-care value of working per week?

Question

Quizplus · Accepted Answer

The spouse earns $800 per week (40 hours x $20). The tax is 50%, so after-tax earnings are $400. Child care costs $500 per week (50 hours x $10). Therefore, the after-tax, after-child-care value of working is $400 - $500 = -$100.

Suppose That the Spouse of the Primary Earner in the Household