A rise in the minimum wage increases the demand for union labor because this policy change
A) lowers the wage rate paid to union labor.
B) raises the productivity of union labor.
C) lowers the cost of a substitute for union labor.
D) lowers the productivity of union labor.
E) raises the cost of a substitute for union labor.

Question

Quizplus · Accepted Answer

When the minimum wage increases, employers may find it less expensive to replace union labor with lower-cost substitutes, such as non-union workers or machines. This makes the cost of these substitutes relatively higher, and therefore increases the demand for union labor, which is now relatively cheaper compared to the substitutes. Option E describes this effect correctly.

A Rise in the Minimum Wage Increases the Demand for Union