Final answer:
When labor demand is highly elastic, a 10% increase in minimum wage laws is likely to cause employment opportunities to drop by more than 10%. The higher labor costs can lead firms to reduce hiring or seek alternatives like automation, as they are sensitive to wage changes. Economists widely debate the impact, but many studies show a decrease in employment for low-skill labor following wage increases. The correct answer is O Employment opportunities would drop by more than 10%.
Step-by-step explanation:
If the demand for labor is highly elastic, and the minimum wage law is increased by 10%, the statement that best describes the effect would be: Employment opportunities would drop by more than 10%. This is because when the demand for labor is elastic, firms are more sensitive to changes in wage rates.
The higher cost of labor could lead to businesses seeking alternatives, such as adopting more capital-intensive production methods or hiring fewer workers. High elasticity indicates that a small increase in wage can lead to a relatively large decrease in the quantity of labor demanded.
Despite some controversy, economists generally accept that a higher minimum wage leads to a reduction in employment for low-skill labor. The extent of this reduction varies among studies, but a typical finding is a 1 to 2% decrease in hiring with a 10% minimum wage increase.
Economists like Walter Williams and Thomas Sowell have posited that minimum wages can also introduce barriers to employment for lower-skilled workers, hindering their ability to gain valuable on-the-job experience. This can affect economic mobility and potentially increase discrimination.