Assume that Robert is willing to work for 40 hours per week no matter what is the wage rate, so his labor supply curve is vertical at 40 hours. The demand curve for Robert is given by the equation: W = 120 – H, where W is the hourly wage rate and H is the number of hours worked per week.
(a) What is Robert’s equilibrium wage rate and hours worked?
(b) Assume that a payroll tax of 20 percent is imposed on employers by the US Government so that the demand curve shifts to W = 100 – 0.6H. What will be Robert’s wage with tax?
(c) Show your answers from (a) and (b) graphically and calculate what percentage of payroll tax Robert will pay?