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.

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 4PA

See similar textbooks

Related questions

Question

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.

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.