One way to remove the excess labor supply problem from a minimum wage policy is to have the government hire all unemployed workers at the minimum wage. What is the key drawback of this version of a minimum wage policy?
A) The deadweight loss may increase substantially.
B) The cost to the government may be very large.
C) Consumer surplus losses increase further.
D) A and B are correct.
E) B and C are correct.

Question

Quizplus · Accepted Answer

The key drawback of the government hiring all unemployed workers at the minimum wage includes both a substantial increase in deadweight loss and a very large cost to the government. Deadweight loss increases because the government's intervention distorts the labor market further, and the cost to the government escalates as it has to finance the wages of all these additional employees, impacting its budget significantly.

One Way to Remove the Excess Labor Supply Problem from a Minimum