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9 Jan 2019

A number of empirical studies suggest that labor demand is very elastic while labor supply is very inelastic. Assume too that payroll taxes are about 15 percent and legislated to be paid half by the employees and half by the employer.

a) What would happen to worker wages if payroll taxes were eliminated?

b) What would happen to employment costs paid by firms if payroll taxes were eliminated?

c) What would happen to producer and worker surplus if payroll taxes were eliminated? Which measure is relatively more sensitive to payroll taxes? Why?

d) Why might workers not want payroll taxes eliminated?

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Elin Hessel
Elin HesselLv2
9 Jan 2019
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