18.7 Business and Policy Application: Minimum Wage Laws: Most developed countries prohibit employers from paying wages below

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18.7 Business and Policy Application: Minimum Wage Laws: Most developed countries prohibit employers from paying wages below some minimum level w. This is an example of a price floor in the labor market, and the policy has an impact in a labor market so long as w . w* (where w* is the equilibrium wage in the absence of policy-induced wage distortions).

A. Suppose w is indeed set above w*, and suppose that labor supply slopes up.

a. Illustrate this labor market and the impact of the minimum wage law on employment.

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