A binding minimum wage in a competitive labour market creates unemployment.

Question

Quizplus · Accepted Answer

When there is a binding minimum wage in a competitive labour market, employers may not be able to afford to hire as many workers as they would without the minimum wage. This can lead to unemployment as some workers may not be able to find jobs at the higher wage rate. Additionally, employers may choose to substitute capital (such as machines) for labour in order to reduce labour costs, further reducing employment opportunities for workers.

A Binding Minimum Wage in a Competitive Labour Market Creates