There was a losing health insurance reform in California that required employers to pay a payroll...

There was a losing health insurance reform in California that required employers to pay a payroll tax into a fund that provided for state-wide health insurance plan (or offer health insurance to their employees). If this law had passed, employers would have had to contribute $1 hour into a health insurance fund for each hour worked by their employees, show graphically what would have happened to wages and employment in California. Be sure to indicate the amount of the tax on your graph.

Expert Solution

Payroll tax on employers increase the cost of employment and leads to a downward shift in the labor demand curve.

As seen in the diagram below

A payroll tax of $1 shifts down the demand curve from D0 to D1.

The payroll tax decreases the wage of the workers receive from W0 to W1 and increases the cost of hiring a worker from W0 to W1+1.

As a result, The employment decreases from E0 to E1.

Rahul Sunny answered 2 years ago

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