The imposition of a minimum wage on a competitive labor market will likely
A) create additional employment opportunities because some low-skilled workers will now see their wage increase.
B) lower the wages of workers earning more than the minimum wage.
C) create unemployment as some people enter the labor market while some firms reduce the quantity of labor they are willing to employ due to the increased wage.
D) increase unemployment of high-skilled workers as firms substitute for high-skilled labor with low-skilled labor.
E) lower the unemployment rate of low-income families.

Question

Quizplus · Accepted Answer

The imposition of a minimum wage above the equilibrium wage in a competitive labor market can lead to unemployment. This occurs because the higher wage makes it more costly for firms to employ workers, leading some firms to reduce the quantity of labor they employ. At the same time, the higher wage may attract more people into the labor market, exacerbating the mismatch between the supply of and demand for labor.

The Imposition of a Minimum Wage on a Competitive Labor