Effort and wages: evidence from the payroll tax
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Citation (published version)Kevin Lang. 2020. "Effort and wages: evidence from the payroll tax." Canadian Journal of Economics / Revue Canadienne d'Économique, Volume 53, Issue 1, pp. 108 - 139. https://doi.org/10.1111/caje.12426
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 noncontractible productivity that are insufficient to prevent market-clearing. Provided labour demand is inelastic, the results are inconsistent with a model of contractible effort.
This is a pre-copy-editing, author-produced PDF file of an article accepted for publication Canadian Journal of Economics following peer review. This accepted manuscript is being archived under the conditions specified in the BU Open Access policy.