EFFICIENCY WAGES, EMPLOYMENT, AND THE MARGINAL INCOME-TAX RATE - A NOTE

In the framework of an efficiency-wage model, Heel [Journal of Economi cs (1990) 51: 89-99] argues that a reduction in the marginal income-ta x rate reduces employment. The present note shows that this result dep ends on how the tax reform is assumed to change the burden per worker. If the tax payment per worker is held constant, it cannot be ruled ou t that a lower marginal tax rate leads to an increase in employment.