Final answer:
An increase in the minimum wage above the equilibrium wage typically results in increased structural unemployment by creating an excess supply of labor, as the cost for firms to hire at previous levels rises.
Step-by-step explanation:
An increase in the minimum wage above the equilibrium wage results in an excess supply of labor, as the number of job seekers becomes greater than the number of job openings. This circumstance is reflected in increased unemployment, specifically structural unemployment. This occurs because the higher wage makes it costlier for firms to hire at the previous level, reducing the quantity of labor they demand. Since structural unemployment is related to changes in the economy such as technological advancements or market changes leading to a mismatch in the skills of the workers and the jobs available, a higher minimum wage can aggravate this problem as it may lead to a more permanent mismatch between the supply and demand for labor in certain industries.
Conversely, frictional unemployment, which occurs when workers are between jobs or are entering the workforce but have not yet found a position, may not be directly affected by the minimum wage. This type of unemployment is typically a short-term condition and does not connect directly to wage controls.
It is important to consider that empirical evidence suggests minimum wage increases may not always have a stark impact on employment levels. There are several reasons for this. One is that an increase in wages can lead to a corresponding increase in consumer spending, which may boost demand for goods and services, potentially offsetting the employment effects of the minimum wage increase. Additionally, higher wages can increase worker productivity and reduce turnover, leading to potential cost savings for employers.