Figure 20-5
-Refer to Figure 20-5. If the government imposes a minimum wage above Wo, it is likely to

Question

Figure 20-5 
-Refer to Figure 20-5. If the government imposes a minimum wage above Wo, it is likely to

Quizplus · Accepted Answer

If the government imposes a minimum wage above Wo, it will increase the cost of labor for firms. This will make some firms unable or unwilling to hire as many workers as before or to keep the same workers at the same hours. Hence, some workers will be laid off or some jobs will not be created. This will reduce the quantity of employment from Qo to a lower level, as shown in the graph. Choice A is incorrect because the minimum wage does not increase the productivity or demand for labor, it only increases its cost. Choice C is incomplete: the working poor who keep their jobs may receive more income, but some may lose their jobs or benefits, so the net effect on the collective income of the working poor is uncertain or may be negative. Choice D is incorrect because the minimum wage has been shown to have an effect on employment, as explained.

Figure 20-5 -Refer to Figure 20-5. If the Government Imposes a Minimum