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Effort and wages: Evidence from the payroll tax
Author(s) -
Lang Kevin
Publication year - 2020
Publication title -
canadian journal of economics/revue canadienne d'économique
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.773
H-Index - 69
eISSN - 1540-5982
pISSN - 0008-4085
DOI - 10.1111/caje.12426
Subject(s) - economics , payroll tax , labour economics , payroll , earnings , wage , efficiency wage , contractible space , productivity , per capita , clearing , unemployment , macroeconomics , population , demography , mathematics , accounting , finance , combinatorics , sociology
I show that under a canonical efficiency‐wage model, a per capita employment tax levied on the employer raises the wage. In contrast, under market clearing, wages fall regardless of whether effort is contractible. I examine the effect of increases in the earnings base for the payroll tax in the United States on wages of high‐wage workers for whom the change represents an increase in a per capita tax. In most specifications, the results suggest that wages rose, consistent with the efficiency‐wage model, but they are generally too imprecise to rule out large effects of wages on non‐contractible productivity that are insufficient to prevent market clearing. Provided labour demand is inelastic, the results are inconsistent with a model of contractible effort.