Taxation, Wage Variation, and Job Choice

32 Pages Posted: 4 Jul 2004 Last revised: 4 Jan 2021

See all articles by James N. Brown

James N. Brown

Rice University - Department of Economics; National Bureau of Economic Research (NBER)

Harvey S. Rosen

Princeton University - Department of Economics; National Bureau of Economic Research (NBER); CESifo (Center for Economic Studies and Ifo Institute)

Date Written: March 1984

Abstract

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.

Suggested Citation

Brown, James Nicholas and Rosen, Harvey S., Taxation, Wage Variation, and Job Choice (March 1984). NBER Working Paper No. w1284, Available at SSRN: https://ssrn.com/abstract=321329

James Nicholas Brown (Contact Author)

Rice University - Department of Economics ( email )

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Harvey S. Rosen

Princeton University - Department of Economics ( email )

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National Bureau of Economic Research (NBER)

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CESifo (Center for Economic Studies and Ifo Institute)

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