I’d like my readers and students to briefly examine the economic literature to determine what the “consensus” is on these two questions.
- What is the economic incidence of the payroll tax and other “benefits” that are mandated to be paid by employers to employees? For example, the total payroll tax amount imposed by the government is 15.3%, with supposedly 7.65% of it being legally borne by firms and the other 7.65% of it being legally borne by workers. There is a solid amount of research on this and a strong consensus (even stronger than the climate consensus) on who bears the burden (i.e. who really pays this tax). The same (though not as strong) will be found about who really pays for employer provided benefits like paid vacation and so on. Note that this research is simply a mechanical exercise and says nothing of the goodness/badness/desirability of this outcome.
- How much do firms respond to increases in the cost of capital – such as when interest rates rise – or other increases in firm costs, such as when there are changes in the corporate tax code? Again, I understand the literature to be pretty clear here. Go look it up.
After you have examined this research, please explain why nominal changes in employer costs on some other dimension would or would not be expected to produce a different result than you find in one or two above?
