A government is considering a new policy to fund a nationwide worker training program by levying a new tax on firms. For this policy to successfully achieve a net increase in both the equilibrium real wage and the level of employment, which of the following conditions is most critical?

Evaluating a Government Training Program

Within the wage-setting and price-setting framework, a government policy that funds a worker training program through a new tax on firms will automatically lead to a higher equilibrium real wage, because the resulting increase in labor productivity guarantees a net positive outcome.

Justifying a Tax-Financed Training Program