By law, the government splits the levy of the FICA tax equally between workers and firms. (a) Using a supply and demand diagram, draw the labor market and label the equilibrium wage and employment level assuming FICA did not exist. Then, on the same graph, draw how the imposition of FICA alters labor market outcomes. Make sure to carefully label equilibrium wages, wages paid, wages received, and employment. (b) If the government splits the levy of the FICA tax evenly between workers and firms, then how is it that some researchers claim that workers pay approximately 90% of payroll taxes? (c) Assume that labor unions lobby the government to have the entire levy of FICA shifted to firms. Will workers ultimately be happy under this new tax structure? Why or why not?
By law, the government splits the levy of the FICA tax equally between workers and firms.
(a) Using a
wage and employment level assuming FICA did not exist. Then, on the same graph,
draw how the imposition of FICA alters labor market outcomes. Make sure to carefully
label equilibrium wages, wages paid, wages received, and employment.
(b) If the government splits the levy of the FICA tax evenly between workers and firms, then
how is it that some researchers claim that workers pay approximately 90% of payroll
taxes?
(c) Assume that labor unions lobby the government to have the entire levy of FICA shifted to
firms. Will workers ultimately be happy under this new tax structure? Why or why not?
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