Question

Suppose that the equilibrium wage in the low-skilled labor market is $14.00. Further, suppose the North Carolina government raises the minimum wage to $10.00 an hour from its present level of $7.25. The government's action of increasing the minimum wage will result in

Select one:
a. a surplus of low-skilled labor.
b. neither a shortage nor a surplus of labor in the low-skilled labor market.
c. a decrease in unemployment.
d. an increase in unemployment.

Answer 1

The government's action of increasing the minimum wage will increase unemployment. The correct answer is d. an increase in unemployment.

Step-by-step explanation:

When the government raises the minimum wage from $7.25 to $10.00, it creates a situation where the new minimum wage is higher than the equilibrium wage of $14.00. This means that employers are now required to pay their low-skilled workers more than the market equilibrium suggests. As a result, employers may find it more expensive to hire as many workers as they did before, leading to a reduction in employment opportunities for low-skilled workers.

The increase in the minimum wage disrupts the balance between labor supply and demand, causing employers to potentially cut back on hiring or even lay off some workers. This leads to an increase in unemployment among low-skilled workers. While some workers may benefit from the higher minimum wage, those who lose their jobs or face reduced hours may experience greater difficulty finding employment, resulting in an overall negative impact on the labor market.