Question

Indicate whether the statement is true or false. If false, please explain why. (Note that if the explanation is incomplete, you may not get the full credits.)

a. Although payroll taxes are imposed on firms, workers bear more burdens than firms when the elasticity of labor supply is greater than the elasticity of labor demand. (4 pts)

b. There might be a situation in which dangerous jobs offer lower wages than safe jobs even if there exist compensating wage differentials. (4 pts)

c. If an underground economy exists, the official unemployment rate might be overestimated than the actual unemployment rate. (4 pts)

d. According to the efficiency turnover hypothesis, the lock-in between the worker and the firm hinders the optimal allocation of the labor market. (4 pts)

Answer 1

a. False,Employees will bear more of the tax only if the labor supply is less elastic than labor demand. If the demand for labor is unit elastic and the labor supply is very elastic, the pyroll tax is mostly borne by the employer.

b. True,The theory of Compensating wage differentials says that people of equal skill will receive different wages when working conditions differ.The aspect of this is that,when working conditions differ,people of different skills might receive the same wage.In both cases workers in less desirable circumstances would receive higher wages than they would otherwise recieve.

c.True, The unemployment rate may overestimated if many partime employees would like to fulltime but are unable to get the additional work also people falsely claim that they are actively seeking work inorder to receive unemployment benefits.

d.True, Efficiency Turnover Hypothesis doesnot suggest that raising the minimum wage could increase employment. In certain sectors the cost of replacing labor are high so the firms way abouve market wages fear of lowering wages would affect the worker's productivity substantially.