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ECON 139 SP 15 Antonovics 5 4 28 15 1 April 28 2015 Lessons 1 It doesn t matter if the taxes are imposed on workers or employers the impact is the same higher labor costs lower take home pay and lower employment 2 If the elasticity of labor demand is greater than the elasticity of labor supply then the burden of the tax falls primarily on workers shown above 3 If the elasticity of labor supply is greater than the elasticity of labor demand then the burden of the tax falls primarily on firms not shown Mandated Benefits The government occasionally mandates that employers provide certain benefits to their workers Mandated maternity leave Mandated health benefits What effect do these mandated benefits have on wages and employment levels a Value less than cost B value to workers C cost to firms B C Shift down the demand curve by the exact amount of the benefit you offer them Workers are worse off Employment goes down Total compensation goes down Firms are worse off The cost of labor goes up b Value better than cost normally this situation only happens when government steps in B C Workers are better off Employment goes up Total compensation goes up Firms are worse off The cost of labor goes down Eg mandated maternal benefits hurts women workers 2 of 7 Immigration If immigrants and native workers are perfect substitutes then immigration causes supply curve to shift out Equilibrium wage Decreases w0 to w1 Employment Increases N0 to E1 Employment of Natives Falls N0 to N1 Suppose immigrants and native workers are not perfect substitutes and so function as two separate inputs An influx of immigrants would lower the wages of immigrants And if immigrants and natives are gross complements this would increase in the demand for native workers leading their wages to rise Theoretical predictions about the effect of immigration on employment depend on whether immigrants and native workers are gross complements or gross substitutes Studying the Impact of Immigration and Employment