Final answer:
The minimum wage is established by the state or federal government, which sets a price floor for labor to protect workers' incomes. While states can set their own higher minimum wages, they cannot go below the federal rate. Large increases in the minimum wage can impact employment levels, especially when set above the equilibrium wage for low-skill labor.
Step-by-step explanation:
The statement that best explains how the minimum wage is established is: (d) It is set by the state or federal government. Minimum wage laws are an example of a price floor, which is essentially the minimum price that must be paid for labor. Governments implement these laws to ensure that workers are paid at least a basic, minimum amount for their work.
In the United States, the federal government sets a nationwide minimum wage, but individual states have the authority to establish their own minimum wages, as long as they are higher than the federal rate. As of 2017, there has been a trend in many U.S. states to increase the minimum wage to $15 per hour. The impact of changes to the minimum wage on employment levels can vary; if the minimum wage is close to the equilibrium wage for low-skill labor, it tends to have a smaller impact, but dramatic increases might reduce the quantity demanded of employment significantly.