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If the demand for unskilled labour were inelastic, would the proposed increase in the minimum wage...

If the demand for unskilled labour 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 labour were elastic?

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Answer #1

If the demand for unskilled labor were inelastic then a proposed increase in the minimum wage will increase the total wage payments to unskilled workers because the percentage decrease in the labor demand will be lower than the percentage increase in the wages.

If the demand for unskilled labor were elastic then a proposed increase in the minimum wage will decrease the total wage payments to unskilled workers because the percentage decrease in the labor demand will be greater than the percentage increase in the wages.

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