A minimum wage which is established higher than the equilibrium wage will result in higher unemployment.

Question

Quizplus · Accepted Answer

When the minimum wage is established higher than the equilibrium wage, it means that employers are legally required to pay their employees more than what they would have paid them in normal market conditions. This results in an increase in the cost of labor for employers, and some may respond by reducing the number of workers they hire, or reducing the number of hours that existing workers work. There may also be some companies which are forced to close down altogether due to the increased costs, leading to long term job loss. As a result, some workers who would have been employed at the equilibrium wage may not be able to find work at the higher minimum wage, resulting in higher unemployment.

A Minimum Wage Which Is Established Higher Than the Equilibrium