6. Who should pay the tax? The following graph gives the labor market for laboratory aides in the imaginary country of Paideia. The equilibrium hourly wage is $10, and the equilibrium number of laboratory aides is 100. Suppose the federal government of Paideia has decided to institute an hourly payroll tax of $4 on laboratory aides and wants to determine whether the tax should be levied on the workers, the employers, or both (in such a way that half the tax is collected from each party). Use the graph input tool to evaluate these three proposals. Entering a number into the Tax Levied on Employers field (initially set at zero dollars per hour) shifts the demand curve down by the amount you enter, and entering a number into the Tax Levied on Workers field (initially set at zero dollars per hour) shifts the supply curve up by the amount you enter. To determine the before-tax wage for each tax proposal, adjust the amount in the Wage field until the quantity of labor supplied equals the quantity of labor demanded. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. 18 16 Supply 14 12 4 10 Demand 4 ++ + 2 IN I 20 WAGE (Dollars per hour) 0 0 20 40 60 80 100 120 140 160 180 200 LABOR (Number of workers) 4 Levied on Employers (Dollars per hour) 0 2 Tax Proposal Levied on Workers (Dollars per hour) 0 4 2 Graph Input Tool Market for Laboratory Aides Wage (Dollars per hour) 000 Labor Demanded (Number of workers) Demand Shifter Tax Levied on Employers (Dollars per hour) For each of the proposals, use the previous graph to determine the new number of laboratory aides hired. Then compute the after-tax amount paid by employers (that is, the wage paid to workers plus any taxes collected from the employers) and the after-tax amount earned by laboratory aides (that is, the wage received by workers minus any taxes collected from the workers). Quantity Hired (Number of workers) 124 0 000 Labor Supplied (Number of workers) Supply Shifter Tax Levied on Workers (Dollars per hour) After-Tax Wage Paid by Employers (Dollars per hour) (?) 76 000 0 After-Tax Wage Received by Workers (Dollars per hour)