The employment effect of a minimum wage increase is greater the
A)more elastic the demand for labor.
B)less elastic the demand for labor.
C)more the wage ceiling shifts the supply curve.
D)more the wage floor shifts the demand curve.

Question

Quizplus · Accepted Answer

When the demand for labor is more elastic, meaning firms are more responsive to changes in wages, then a minimum wage increase can lead to a decrease in employment. Firms will hire fewer workers as the cost of labor has increased. On the other hand, when the demand for labor is less elastic, firms may pass some of the increased labor costs onto consumers through higher prices or absorb some of the costs through lower profits instead of cutting jobs.

The Employment Effect of a Minimum Wage Increase Is Greater