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Human Resource Economics Questions

Research Report

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Human Resource Economics Questions


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Human Resource Economics Questions

Task 1

A. The cases of payroll tax affect actual wages paid to employees. Moreover, the payroll affects the demand curve and employment quantity by shifting them to the left. While the tax burden is usually shared between the employer (ER) and employee (EE), employees' wages tend to decrease.

Figure 1

Payroll Tax on Employee (EE)

Fig. 1 shows that wages shift from W1 to W when EE pays payroll tax. Such an increase is due to the EE’s desire to compensate losses so that a higher salary mitigates the payroll tax value (W-W1). Nonetheless, the employment quantity is decreasing from N to N1, as ER wills to hire fewer employees with higher wages. Moreover, if ER sustains the same labor quantity (N), the actual wages will be lower (Actual W).

Figure 2

Payroll Tax on Employer (ER)

Fig. 2 indicates that if ER fully covers the payroll tax burden, the demand curve shifts to the left. The wages workers receive decrease (W1), causing a reduction in employment quantity (N1). Moreover, if the employer desires to sustain the same employment quantity (N), the wages will be lower than that of W1. Besides, the hiring costs for the employer will be above that of W, as expenses increases due to the payroll tax burden.

Figure 3

Reduction on EI premium

B. The impact of an existing EI premium on employment reduction on the employer's compensation costs and employee's after-tax wages will shift the demand curve to the left (D1). Fig. 3 shows that it reduces employment, as fewer employees are willing to get more minor bonuses. Nonetheless, the employer will pay more to the employees (W2) to sustain the same level of employment quantity (N).

Thus, the decrease in incentives stimulates the actual wage growth. Nonetheless, the employment axis shows that demand for new hires decreases so that no new job positions are created. If businesses increase the incentives, they will increase demand, but reduce the actual wage value.

Task 2

Figure 4

Fees’ Reduction Impact

A. The negative supply elasticity indicates that the doctor's fees – hours relation has the income effect. Fig. 4 reveals that doctors' fees are high enough to demand more leisure hours or fewer working hours (A). Nonetheless, the 10% reduction in service fees creates the substitute effect. With the new costs (Wr), doctors demand more hours (H1) to equalize their income before the reduction (W).

A backward bending labor supply curve suggests that the substitution effect outweighs the effect of changes in income only at relatively low wage levels. With an increase in wages, the impact of changes in income becomes higher and, ultimately, exceeds the substitution effect, forcing a person to work less following the growth of wage rates. Some choose to work less when their hourly wages rise to spend their higher wages on leisure activities. As workers earn more, they tend to amass their high incomes for vacations, entertainment, or hobbies.

B. Work-sharing is a form of employment in which, as a rule, two people perform work previously done by one full-time person on a part-time basis. Persons employed on such terms work in a team and are jointly and severally liable for the performance of a specified amount of work. Remuneration and vacation time are distributed among employees in proportion to the working hours. National insurance and pension contributions are also prorated.

The program provides for an employment insurance benefit to workers who agree to a reduction in regular working hours and the division of work for the "recovery" time of the enterprise. Benefits of the work-sharing include reduced turnover and absenteeism since it is in the best interest of employees to allocate work time consistently. This initiative allows attracting more workers who cannot work full-time but want to have a permanent job. The disadvantages of using work-sharing are administrative costs and the risk of shared responsibility.

For senior employees, the work-sharing will have little impact on salary and amount of leisure days. The junior employees' compensation will be reduced; however, having one extra leisure day and confidence in the permanent job will protect them from layoffs. Moreover, junior specialists will be shifted to the left from the layoff point, assuming the income-leisure curve. The income reduction will slightly impact leisure for senior specialists, taking a straighter budget line on the right.

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