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Minimum wage effects

The government of a large U.S. city recently established a living wage law that beginning January 1 of next year, will require all businesses operating within the city limits to pay their workers a wage no lower than $8.50 per hour. The current equilibrium wage for fast food workers is $7.50 per hour in this city. Predict what will happen to each of the following beginning on January 1 of next year:

1. The quantity of labor supplied by fast food workers
2. The quantity of labor demand by fast food producers
3. The number of unemployed fast food workers in this city

Solution Preview

1. The quantity of labor supplied by fast food workers will increase. At that new price, we are moving upwards (to the right) on the supply of labor, to a higher quantity. That is, more money offered, more people willing to work at ...

Solution Summary

This is a typical solution to the economic effects of a raise in the minimum wage. It describes what happens to the supply and demand of labour and also the effect of this on the unemployment rate. It is a good description of any minimum wage question.