What are some reasons why a modest increase in the minimum wage might not significantly affect employment?
Ans: When the minimum wages are set above the equilibrium wage level, then a rise in minimum wage would not significantly affect the employment level. This is shown in the following diagram. If the Wmin is set above the equilibrium wage rate, then wages cannot go below the minimum wage level so it cannot achieve the equilibrium wage level where demand of labor is equal to supply of labor. Therefore, at minimum wage level which is above equilibrium wage level, the supply of labor is more than the demand for labor. There is surplus of labor supply. So, even if the minimum wage rate rises the firms would not hire more labor because it is already above the equilibrium market level.
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