A minimum wage of $7.25 per hour can cause structural unemployment if the equilibrium wage is:
A) $7.25.
B) $8.00.
C) $6.85.
D) $7.30.

Question

Quizplus · Accepted Answer

If the equilibrium wage is equal to or higher than the minimum wage of $7.25 per hour, then implementing the minimum wage will not cause structural unemployment. However, if the equilibrium wage is lower than the minimum wage, such as in the case of choice C ($6.85), then employers will have to lay off workers or reduce hiring in order to afford to pay the higher wage. This results in an excess supply of labor and structural unemployment. Therefore, a minimum wage of $7.25 can cause structural unemployment if the equilibrium wage is below that amount, as in choice C.

A Minimum Wage of $7