Suppose that Jean is an unskilled worker who is making the market wage of $7 per

Question

Suppose that Jean is an unskilled worker who is making the market wage of $7 per hour and that the market for unskilled labor is competitive. Suppose further that the government is proposing to increase a payroll tax to fund changes to Social Security and is debating whether to levy the tax on employers or workers.

1. Assume there is no minimum wage. If Jean could lobby the government, what position should she take regarding whether the tax should be levied on employers or employees? Explain.

2. Should a $7.25-per-hour minimum wage change Jean's position? Why or why not?

Explanation / Answer

1. It does not makes any difference that who is paying the tax as per second rule of tax incidence so Jean can take any side.

2. Yes now Jean should take side that tax should be levied on employers as due to minimum wage rule employers cannot reduce the wage even if they have to pay more taxes but if employee pay taxes then they have to shed off more tax.

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