Assume the minimum wage exceeds the market-clearing wage. If there is an increase in the labor supply, then the number of workers who are unemployed will ______ and the number of workers who are employed will _______.
A) increase; increase
B) increase; decrease
C) increase, not change
D) decrease; increase

Question

Quizplus · Accepted Answer

Since the minimum wage exceeds the market-clearing wage, there are already some workers who are unemployed. If there is an increase in the labor supply, this will lead to more competition among workers for a limited number of jobs, but since the minimum wage is already higher than the market-clearing wage, firms will not be able to hire any additional workers at the higher wage. Therefore, the number of workers who are employed will not change, while the number of workers who are unemployed will increase.

Assume the Minimum Wage Exceeds the Market-Clearing Wage