Question
3. In class we explored the effects of the minimum wage on the economy. For the past several years many have pushed for a $15
3. In class we explored the effects of the minimum wage on the economy. For the past several years many have pushed for a $15 per hour minimum wage, but in some parts of the US $15 per hour is common. F/M is getting close. For this problem, suppose the government increases the minimum wage to $20, which is above equilibrium wage in the market for unskilled labor.
a. Using a supply-and-demand diagram of the market for unskilled labor, show that market wage, the number of workers who are employed, and the number of workers who are unemployed. Also show the total wage payments to unskilled workers.
b.Now suppose the secretary of labor proposes another increase in the minimum wage all the way to $30 so that all workers receive a living wage. What effect would this increase have on employment? Does the change in employment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither.
c.If the demand for unskilled labor were inelastic, would the proposed increase in the minimum wage raise or lower total wage payments to unskilled workers? Would your answer change if the demand for unskilled labor was elastic?
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