STSTEER

Labor Supply Distortions

Computing how a labor income tax changes hours worked, labor supplied, or the labor-market equilibrium.

Question template

A fitness instructor earns a gross wage of $wage an hour and currently pays no income tax. A labor income tax of tax rate% is introduced, and the gross wage stays at $wage an hour. The fitness instructor's wage elasticity of labor supply, with respect to the after-tax wage, is elasticity. Use the elasticity as a linear approximation: the percentage change in hours equals the elasticity times the percentage change in the after-tax wage. By what percentage do the fitness instructor's hours of work change? Give the percentage rounded to two decimals, negative for a decrease.

Use it

from datasets import load_dataset
ds = load_dataset("narunraman/steer_me", "labor_supply_distortions")