Minimum wage effects
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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
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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.
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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 ...
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