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Statutory Minimum Wage (SMW) has come into force since 1 May 2011 in Hong Kong. The...

Statutory Minimum Wage (SMW) has come into force since 1 May 2011 in Hong Kong. The current SMW rate is $37.5 per hour.

a. Briefly explain how an effective minimum wage causes a structural unemployment.

b. With the aid of a demand-and-supply diagram, illustrate the effect of an economic recession on a labour market with an effective minimum wage.

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