Question

3.) How do minimum wage laws impact the unemployment rate? If minimum wage was raised to $15/hr, how might the unemployment rate change?
(Kentucky based question. current minimum wage is $7.25)

Answer 1

Minimum wage if increased, the cost of production is likely to shoot up. Rise in cost of production will reduce demand for labor in market. Empirical researches suggest that if minimum wage is increased, employment will fall. But it will affect the unskilled and skilled workers differently.

Increase in minimum wage gives rise to demand for skilled labor. employments for skilled class will rise but conversely, demand for unskilled labor will decreases substantially.

Further, development robotic and automation also reduce employments, When minimum wage raises the cost of production. the cost of hiring labor tends to be same as the cost of using automation. So many firms move towards using automation.

To sum, raising minimum wage to $ 15 will invariably reduce demand for unskilled labor and similarly, demand for skilled will witness rise. Eventually, overall employment will fall.