Taxation, Wage Variation, and Job Choice
This paper examines the effect of earnings taxes on wage variability over t ime. The authors estimate a "hedonic wage locus" which indicates ho w the market allows individuals to substitute the mean level of the w age for its variability across jobs. Information from this locus is u sed to estimate the parameters of individuals' indifference curves be tween the mean and temporal variation of hourly wages. On the basis o f these utility-function parameters, they predict that lowering the r ate of taxation on earnings would on average lead workers to choose j obs with slightly lower pretax mean wages and with less pretax wage v ariation. Copyright 1987 by University of Chicago Press.
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