The first thing we need to think about to answer this question is the target of this income tax. During a short introduction it is useful to outline what the question is really asking so that you are able to clearly set out the way your essay will answer the question. Once this has been done, we can get down to actually making our points. This kind of question requires a number of points to form a balanced argument to explore what the effects on labour markets will actually be and two or three is usually sufficient. The effect will be very different depending on the income group that it is used on. One possibility here would be just a simple flat increase in tax on all income groups, for example, and this would likely cause a reduction in the participation of the work force. If the rate of income tax increases this causes what is called a disincentive as workers are going to receive less money for the hours they put in. This is where we can evaluate this idea. For a question like this, it is always important to present a counter argument that can be supported by some economic knowledge. In this case the alternative is that it could actually increase the participation of the workforce as they now need to work more to receive the same income after tax as they did previously.
Once we've explored this suggestion as an answer, we can move on to the next point. Another way the increase in income tax could be used would be to just target those on higher incomes. This becomes more complicated as it isn't necessarily going to just effect hours worked but the number of people in the labour force. If those on high wages believe they can be far better off working and taking there skills to other countries with lower rates of tax, then they may choose to completely remove themselves from the workforce. We have now considered a completely different effect and the examiner will be able to now see that you not only have a wider range of knowledge on the subject, but that you are also able to create arguments with opposing views on what will actually happen. Again an evaluotory point would also be needed to achieve the highest marks for this point.
In this example two fully developed points is enough to answer the question fully. To finish off the answer it is vitally important that you include a conclusion where you link together the points you have made and make judgements about the most likely outcome in your opinion. In this case, the question is fairly vague and you may want to say that neither impact that we discussed earlier is clearly going to happen as we do not know the specifics of the tax. This also links nicely back to the introduction and the way in which the essay is structured. Earlier we outlined that the target group for the tax was important in assessing the consequences and in the conclusion you can tie this all up. Once youve stated your final judgement based on the various pieces of analysis and evaluation in the essay it is complete.