Question

In a labor market, suppose government levies a payroll tax on both employees and employers to fund a workers' compensation program to form a tax-benefit linkage. Which of the following is NOT an effect of these actions?

a. The new taxes shift the demand curve to the right.
b. The new taxes shift the supply curve to the left.
c. The workers' compensation program shifts the supply curve to the right.
d. Equilibrium employment and wages change.

Answer 1

The workers' compensation program does not shift the supply curve to the right.

Step-by-step explanation:

When the government levies a payroll tax on both employees and employers, it increases the cost of labor for employers. This leads to a decrease in the demand for labor and a leftward shift in the labor demand curve. Additionally, the tax also reduces the take-home pay for employees, which decreases their willingness to work and leads to a leftward shift in the labor supply curve.

The workers' compensation program itself does not directly shift the supply curve. Instead, it provides workers with benefits in the event of workplace injuries or illnesses, which can indirectly affect the labor supply. For example, if workers feel that they have better protection through the workers' compensation program, they may be more willing to accept jobs that are riskier in terms of workplace safety.

Therefore, the correct answer is that the workers' compensation program does not shift the supply curve to the right.