Economic models predict that a binding minimum wage will generally cause increased unemployment for low-skilled workers.

Question

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Economic theory suggests that a binding minimum wage, meaning a wage floor set above the market equilibrium, will increase the wage cost to firms and lead them to reduce their demand for low-skilled workers, ultimately causing higher unemployment among this group. However, the extent to which this effect occurs in reality is a subject of ongoing debate among economists.

Economic Models Predict That a Binding Minimum Wage Will Generally