Question Ten

Setting aside the issue of the number of hours versus number of workers, some commentators point out that this penalty is like a tax on labor. The effects of such a tax can vary considerably across sectors of the economy. For example, agricultural production is fairly land and capital intensive, whereas some segments of the services industry are fairly labor intensive (e.g. restaurants, nursing homes). Based on these differences, where would you expect the new penalty to have the larger percentage effect on employment? Explain using theories developed in this course. ( 5 marks)