Consider a labor market in which workers are paid the minimum wage. When will it matter for tax incidence whether a payroll tax is imposed on workers or on employers? A.Normally, the statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the less-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are not legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will not be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees. B.Normally, the statutory imposition of a tax is relevant to the actual economic incidence because the party on whom legal liability rests will not shift the burden if it can, and the more-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will not be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees. C.Normally, the statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the more-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees. D.Normally statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the less-elastic party will bear most of the burden of the tax. However, a tax imposed on employers cannot be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will bear the full burden. On the other hand, a tax imposed on workers will be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with inelastic demand for labor are likely to share some of the burden of a tax imposed on employees.

Consider a labor market in which workers are paid the minimum wage. When will it matter for tax incidence whether a payroll tax is imposed on workers or on employers? A.Normally, the statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the less-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are not legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will not be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees. B.Normally, the statutory imposition of a tax is relevant to the actual economic incidence because the party on whom legal liability rests will not shift the burden if it can, and the more-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will not be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees. C.Normally, the statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the more-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees. D.Normally statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the less-elastic party will bear most of the burden of the tax. However, a tax imposed on employers cannot be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will bear the full burden. On the other hand, a tax imposed on workers will be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with inelastic demand for labor are likely to share some of the burden of a tax imposed on employees.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider a labor market in which workers are paid the minimum wage. When will it matter for tax incidence whether a payroll tax is imposed on workers or on employers?

A.Normally, the statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the less-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are not legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will not be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees.

B.Normally, the statutory imposition of a tax is relevant to the actual economic incidence because the party on whom legal liability rests will not shift the burden if it can, and the more-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will not be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees.

C.Normally, the statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the more-elastic party will bear most of the burden of the tax. However, a tax imposed on employers can be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will not bear the full burden. On the other hand, a tax imposed on workers will be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with elastic demand for labor are likely to share some of the burden of a tax imposed on employees.

D.Normally statutory imposition of a tax is irrelevant to the actual economic incidence because the party on whom legal liability rests will shift the burden if it can, and the less-elastic party will bear most of the burden of the tax. However, a tax imposed on employers cannot be shifted to workers earning the minimum wage; employers are legally constrained from lowering wages further, so they will bear the full burden. On the other hand, a tax imposed on workers will be at least partially shifted to employers if the demand for labor is inelastic. Therefore, minimum-wage employers with inelastic demand for labor are likely to share some of the burden of a tax imposed on employees.

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