Figure 4-16 Refer to Figure 4-16. Some policymakers have argued that the government should establish a "living wage." A living wage would provide workers a reasonable standard of living in their city or region. If a living wage of $10 per hour is established in the market pictured here, we would expect
A) employment will increase to 14 million.
B) employment will decrease to 8 million.
C) the wage will actually rise to $20 per hour.
D) there will be a surplus of 14 million workers.

Question

Figure 4-16  Refer to Figure 4-16. Some policymakers have argued that the government should establish a "living wage." A living wage would provide workers a reasonable standard of living in their city or region. If a living wage of $10 per hour is established in the market pictured here, we would expect
A) employment will increase to 14 million. 
B) employment will decrease to 8 million. 
C) the wage will actually rise to $20 per hour. 
D) there will be a surplus of 14 million workers.

Quizplus · Accepted Answer

If a living wage of $10 per hour is established in the market pictured here, we would expect employment to decrease to 8 million. This is because at $10 per hour, the demand for labor (shown by TB) intersects with the supply of labor (shown by S) at a quantity of 8 million workers. Any workers who are not skilled enough to earn the living wage would become unemployed. Thus, the establishment of a living wage can lead to a decrease in employment, particularly among low-skilled workers.