Consider each of the following and explain why it is or is not a valid instrument for estimating the labor supply elasticity and/or labor demand elasticity in the United States. (1) Variation in state income tax rates. (2) Variation in state corporate tax rates. (3) Changes in federal income tax rates over time.
Consider each of the following and explain why it is or is not a valid instrument for estimating the labor supply elasticity and/or labor demand elasticity in the United States. (1) Variation in state income tax rates. (2) Variation in state corporate tax rates. (3) Changes in federal income tax rates over time.
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter25: The Supply Of And Demand For Productive Resources
Section: Chapter Questions
Problem 5CQ
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Transcribed Image Text:3-6. Consider each of the following and explain why it is or is not a valid instrument for
estimating the laboor supply elasticity and/or labor demand elasticity in the United
States. (1) Variation in state income tax rates. (2) Variation in state corporate tax
rates. (3) Changes in federal income tax rates over time.
3-7. Suppose a firm purchases labor in a competitive labor market and sells its product
in a competitive product market. The firm's elasticity of demand for labor is –0.4.
Suppose the wage increases by 5 percent. What will happen to the amount of labor
hired by the firm? What will happen to the marginal productivity of the last worker
hired by the firm?
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