A worker’s wage income is taxed at 40%, while job amenities (such as

having a nice working place) are not taxed at all. If the worker is

earning $40,000 and the worker gets amenities worth $10,000, what is

the worker’s full wage (equaling after-tax wage plus value of job

amenities)? Suppose a new amenity (a fitness center) costs the firm

$4,500 per worker and the worker values the amenity at $3,000. What

is the lowest after-tax wage that the worker will accept if he or she

gets this new amenity, such that the full wage is the same as before?

What is the before-tax wage change (the wage change the employer sees)? Will the firm supply the amenity? Note that this amenity costs

$4,500 and is only worth $3,000. What is the economic waste?