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[Payroll tax is like a sales tax but applies to workers' wages. Many economists have called the state payroll tax a tax on employment.] a]
[Payroll tax is like a sales tax but applies to workers' wages. Many economists have called the state payroll tax a "tax on employment\".] a] bi [Suppose that the equilibrium wage is given by $18 per hour. The government introduces a payroll tax on employment of $4 per hour that must be paid to the government by employers. Show in a diagram, how this will lead to a reduction in employment (quantity of labour employed in hours}. Explain in 100 words or less who will bear the cost of the payroll tax? (Hint: show wages on Y axis and quantity of labour in hours on X axis in your labour demand and supply model). [4 marks\" [Now, suppose that before the government introduces the payroll tax, there is a minimum wage set at $22 per hour. Explain in 2-3 sentences why this wage floor is binding. Also, explain in 1-2 sentences the effect of this price oor on employment and unemployment, (i.e., quantity of labour employed in hours). No diagrams needed. {3 marks]] [This minimum wage law stays in place when the payroll tax is introduced so that employers must pay workers at least $22 per hour and then pay an extra $4 per hour to the government in tax. Explain in 100 or less words how the payroll tax will affect the level of unemployment. (Hint: unemployment here refers to excess supply of labour). (3 marks\
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