The imposition of a minimum wage on a competitive labor market will likely
A)create additional employment opportunities because some low-skilled workers will now see their wage increase.
B)lower the wages of workers earning more than the minimum wage.
C)create unemployment as some people enter the labor market while some firms reduce the quantity of labor they are willing to employ due to the increased wage.
D)increase unemployment of high-skilled workers as firms substitute high-skilled labor for low-skilled labor.
E)lower the unemployment rate of low-income families.

Question

Quizplus · Accepted Answer

Imposing a minimum wage above the equilibrium wage in a competitive labor market can create unemployment as some firms will reduce the quantity of labor they are willing to employ due to the increased wage. At the same time, some low-skilled workers may also see their wage increase, which can attract more people to enter the labor market. However, not all of these new entrants may find jobs, which could lead to higher unemployment. This effect is particularly relevant in industries with low-profit margins, where small firms may struggle to pay higher wages, leading to higher unemployment.

The Imposition of a Minimum Wage on a Competitive Labor