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Exercise 8 Payroll

Exercise 8 Payroll - levels with the payroll tax as well as...

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ECOglyph1197 4616 In-Class Exercises glyph1197AME: Prof. Francisca Antman Exercise 8—Payroll Taxes In a particular industry, labor supply is E S = .5w while labor demand is E D = 10 – .5w , where E is the level of employment and w is the hourly wage. (a) What is the labor market equilibrium wage rate and employment level in this industry? (b) Now suppose the government implements a payroll tax of $4 that workers pay to the government. In a diagram of the labor market, show the wage rate and employment
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Unformatted text preview: levels with the payroll tax as well as those you found in (a). What is the effect of the tax on the wage rate and employment level? (c) In your graph in (b) label all relevant sections of the graph (for example a, b, c, etc.) and fill out the following table showing the welfare effects of the tax on society. No-Tax (Before) With Tax (After) Firm surplus Worker surplus Government Revenue Social Surplus (Total Gains from Trade) Deadweight Loss...
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