Consider a labour market initially in competitive equilibrium. The introduction of an effective minimum wage:
A)will decrease employment.
B)may increase employment.
C)will decrease the wage rate in the long run.
D)will reduce the average earnings of those employed in the initial competitive equilibrium.

Question

Quizplus · Accepted Answer

The introduction of an effective minimum wage will increase the cost of hiring workers, which will lead to a decrease in employment as firms will need to reduce their workforce to maintain profitability.

Consider a Labour Market Initially in Competitive Equilibrium