Final answer:
An increase in the minimum wage leads to an upward shift in the worker supply curve (WS), as higher wages attract more workers. The higher labor costs could cause employers to reduce employment or increase product prices, and the overall policy impact is subject to debate.
Step-by-step explanation:
An increase in the minimum wage will cause an upward shift in the worker supply curve (WS) due to higher wages attracting more workers into the labor market. It does not directly cause an upward shift in product supply (PS), as this relates to goods rather than labor. Instead, firms may decrease their supply curves for goods, potentially leading to higher product prices.
In labor market models, a higher minimum wage is anticipated to create an upward pressure on wages, leading to an increased quantity of labor supplied, which would be graphically represented by a shift of the labor supply curve to the right. This is because, at higher wage levels, more individuals are likely to want to work; thus, they add themselves to the pool of people willing to supply their labor.
Employers might respond to a higher minimum wage by reducing employment or passing the increased costs onto consumers in the form of higher prices. If the 5% increase in minimum wage results in a 5% reduction in employment, this could harm some workers who may lose their jobs while potentially benefiting those who retain their jobs at higher wages. Whether such a policy is good or bad is a matter of debate and needs to be evaluated in the context of its economic and social impacts.