Final answer:
A minimum wage of $7.50 would be non-binding in a labor market where the equilibrium wage is $10, thus having no impact on employment levels. Minimum wages that are set below or just slightly above the equilibrium wage typically do not create substantial unemployment. Significantly higher minimum wages than the equilibrium can lead to reduced labor demand and increased unemployment.
Step-by-step explanation:
A senator is considering introducing a bill to legislate a minimum hourly wage of $7.50. Analyzing the impact of this minimum wage on the labor market depends on its relationship with the equilibrium wage. The given scenario suggests that the equilibrium wage is $10 an hour, which means that a minimum wage of $7.50 would be non-binding and thus, have no effect on employment because the market wage is already higher than the proposed minimum wage.
Let's address the true or false statements accordingly:
If the minimum wage is set at $10.50, the market will not reach equilibrium. This statement is True because if the minimum wage is set above the equilibrium wage of $10.00, it becomes a binding constraint leading to excess supply or unemployment.
Binding minimum wages cause frictional unemployment. This statement is False, as binding minimum wages cause structural unemployment, not frictional unemployment which is short-term and occurs due to workers transitioning between jobs.
In the absence of price controls, a shortage puts upward pressure on wages until they rise to the equilibrium. This statement is True because in a free market, a shortage of labor would naturally lead to higher wages as employers compete for scarce workers.
In this labor market, a minimum wage of $7.50 is binding. This statement is False because the market equilibrium wage is higher at $10.00, and therefore the minimum wage has no impact on wages or employment levels.
The insights from historical data indicate that minimum wages set close to the equilibrium wage for low-skill labor tend not to drastically alter employment levels. However, if the minimum wage were to increase significantly, for example to match the $15 per hour living wage considered by some U.S. cities, it could have a more substantial impact on employment, potentially reducing the quantity of labor demanded.