Final answer:
The most unemployment would likely occur in a country where the minimum wage is set at 95% of the median wage, as it would narrow the cost difference between low-skill and median-wage labor, discouraging hiring. A minimum wage at 1% of the median wage would have little impact on employment levels.
Step-by-step explanation:
When comparing minimum wage with median wage to assess its impact on unemployment, economists generally agree that the closer the minimum wage is to the median wage, the greater the potential for unemployment due to an excess supply of labor. If the minimum wage is set at a high percentage of the median wage, employers may find it less affordable to hire workers at that rate, leading to fewer job offers and higher unemployment.
A scenario where the minimum wage is set at 95% of the median wage would likely result in the highest level of unemployment, as the cost of employing entry-level or low-skill workers would be almost as costly as employing median-wage workers, thus discouraging hiring and potentially leading to job losses or slower job creation.
Conversely, a minimum wage set at 1% of the median wage would have minimal impact on employment levels as it would be significantly below the equilibrium market rate for labor. This could lead to a situation where the minimum wage is largely irrelevant to the dynamics of the labor market.
Historical evidence from minimum wage laws in the United States indicates that when the minimum wage is close to the equilibrium wage for low-skill labor, its impact on employment is minor. Increases in the minimum wage that are significant, such as many U.S. states moving towards a $15 per hour minimum wage, may have a more pronounced effect on reducing employment especially among low-skill labor.