Question

Explain why U.S. minimum wage laws have historically had only a small impact on employment. Include a graph to depict the minimum wage as a part of your answer

Answer 1

A non-binding price floor is a price floor set just BELOW the equilibrium point.

The price floor is not determining the market outcome

So, Wages could fluctuate according to market forces above this price floor, but they would not be allowed to move beneath the floor.

These insights help to explain why U.S. minimum wage laws have historically had only a small impact on employment. Since the minimum wage has typically been set close to the equilibrium wage for low-skill labor and sometimes even below it, it has not had a large effect in creating an excess supply of labor.