The effects of the tax on equilibrium wage and employment

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Some time ago the city of Chicago imposed a new per-worker employment tax on employers to help pay for city services. A city alderman, asserting that the city lawyers drafted the law so that it taxed employers, not workers, said ``The City of Chicago will never tax the working man." Show the consequences of this tax on the local labor market using diagrams. That is, show (1) the effects of the tax on equilibrium wage and employment; (2) the effects of the tax on the effective wages received by workers and paid by firms; and (3) the tax incidence or burden to workers and firms. Then, based on your diagram, comment on the alderman's statement.

Reference no: EM13984713

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