Taxation, Wage Variation, and Job Choice
Working Paper 1284
DOI 10.3386/w1284
Issue Date
This paper examines the effect of earnings taxes on the variability of wages over time. We estimate a "hedonic wage locus" which indicates how the market allows individuals to substitute the mean level of the wage for its variability across jobs. Information from this locus is used to estimate the parameters of individuals' indifference curves between the mean and temporal variation of hourly wages. On the basis of these utility function parameters, we predict that lowering the rate of taxation on earnings would on average lead workers to choose jobs with a higher pre-tax mean wage and with greater wage variation.
Published Versions
Brown and Rosen, Journal of Labor Economics, October 1987. citation courtesy of