Question 2. When hiring employees in Korea, all employers must enroll their employees in social insurance schemes such as national pension, health insurance, and employment insurance. Employers and employees are required to equally share the cost burden of the contributions according to the relevant laws. Consider the social insurance contributions as a tax on labor (a labor tax or a payroll tax).

(1) Who do you think bears a larger share of this labor (payroll) tax burden, employers or employees, or fifty-fifty?

(2) Which do you think is more elastic, the supply of labor or the demand of labor?

(3) ~ (5) To support your argument, draw a supply-and-demand diagram of the labor market in page 3 in this assignment and show (3) the initial supply curve and (4) the initial demand curve, and (5) the wage without the tax. The graph has to be drawn in a way that it supports your argument in 2(1) and 2(2).

(6) ~ (7) Decide whether the tax levied on both the buyers and sellers of labor shifts the supply curve, demand curve, or perhaps both, and show on the graph (6) the shifts in the curves and (7) the new equilibrium.

(8) ~ (10) Show (8) the size of the tax, (9) the wage employers pay, and (10) the wage workers receive.

(11) Show on the graph the deadweight loss of the tax.

(12) What effect does the labor tax have on employment?

(13) What effect does the labor tax have on unemployment?