Tax incidence split between workers and firms

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In a labor market before any taxes are imposed, the equilibrium wage rate is $10.00 an hour and 10,000 people are employed. The government imposes a 20 percent income tax on workers' incomes. What is the wage rate that workers need to receive so that they can earn $10.00 per hour after the tax is paid? Suppose that after the tax is imposed, the wage rate rises to $12.00 an hour and that only 8,000 workers are employed. How is the tax incidence split between workers and firms?

Reference no: EM131267005

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