Draw the graph · Micro · Labor market
A payroll tax on employers
Drag a curve sideways, or use its arrows. A curve you do not move is a curve you are saying stays put. Make each shift clear enough that a reader could see it.
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Labor demand shifts left. Labor supply stays put.
The tax raises the cost of employing a worker beyond the wage. At any wage, each hire is now worth less to the firm after the tax, so firms want fewer workers at every wage. Labor demand shifts left. Labor supply is unchanged. The lower wage moves some workers out along their supply curve.
The wage falls and employment falls.
Common mistake. Students often shift labor supply left because 'the tax takes money from workers.' The tax is collected from employers, so it changes the employer side first. Workers feel it only through the lower wage.
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