Binding minimum-wage laws

Question

Quizplus · Accepted Answer

Binding minimum-wage laws force employers to pay a wage higher than the market equilibrium, which results in a surplus of labor supply and a shortage of labor demand. This leads to a market imbalance between the supply and demand for labor, causing inefficiencies in the labor market. Therefore, option B is correct. Option A is incorrect because elastic labor demand means that employers are very responsive to changes in wages, which could lead to the substitution of labor with machines or outsourcing to other countries, resulting in a decrease in employment. Option C and D are also incorrect because binding minimum-wage laws are unlikely to increase the efficiency of labor markets or employment among the poor in the long term, particularly in the absence of robust economic growth.

Binding Minimum-Wage Laws