If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor and employers increasingly used efficiency wages, it would ___ unemployment and ____ the natural rate of unemployment:
A)Increase; increase.
B)Increase; not change.
C)Not change, increase.
D)Do none of the above.

Question

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor and employers increasingly used efficiency wages, it would ___ unemployment and ____ the natural rate of unemployment:
A)​Increase; increase.
B)​Increase; not change.
C)​Not change, increase.
D)​Do none of the above.

Quizplus · Accepted Answer

If a minimum wage law is passed imposing a price floor above the equilibrium price of unskilled labor, employers will be forced to increase the wages they pay to their employees. This will increase the cost of labor and cause employers to use efficiency wages, which are higher than the market wage, to motivate their workers to be more productive. Efficiency wages will reduce the number of job openings, increase the number of unemployed workers, and increase the natural rate of unemployment. Therefore, the best choice is "A" because the minimum wage law will increase unemployment and increase the natural rate of unemployment.

If a Minimum Wage Law Is Passed Imposing a Price