Final answer:
The correct answer is 2) have no effect on employment.
A minimum wage set below the equilibrium wage will have no effect on employment, as employers are already willing to pay a higher wage. If the minimum wage is increased above the equilibrium wage, it could create unemployment.
Step-by-step explanation:
If a minimum wage is set below the equilibrium wage, it will have no effect on employment, according to economic theory and historical evidence in the United States. The equilibrium wage is the market-determined wage rate where the quantity of labor demanded equals the quantity of labor supplied. When the minimum wage is set below this level, employers are already willing to pay a higher wage to attract enough workers to meet their labor needs. Therefore, a minimum wage lower than the equilibrium wage does not change the wage that workers receive or the number of jobs available.
However, if the minimum wage is increased to a point where it is above the equilibrium wage, it becomes a binding constraint and can create an excess supply of labor, leading to unemployment. Additionally, substantial increases in the minimum wage can result in a reduction in the quantity demanded for labor, potentially leading to higher unemployment levels.
Historically, in cases where the minimum wage has been close to the equilibrium wage, it has had only a small impact on employment levels. However, dramatic increases in the minimum wage could lead to more significant effects on both wages and employment.