Question

Fill in the each of the blanks with one word.

A binding minimum wage always creates a __________________ which forces the employer to______________________. (This is a commonly misunderstood or ignored reality which allows us to predict the distribution of costs and benefits of a binding minimum wage, who wins and who loses.)

Answer 1

A binding minimum wage always creates a Cost Increase/ Non Optimal Production/ Production Inefficiency which forces the employer to Layoff Workers.

Minimum Wages are the lowest wage payments that the employer needs to compensate its employees with. A minimum wage, generally seen as a welfare measure for employees is contested upon as it may work the opposite. Some unemployed workers would gladly work for a lower wage but cannot find a job, and some employers would be happy to hire workers at a lower wage but the law forbids it. Thus, in a competitive labor market, a binding minimum wage reduces employment and creates involuntary unemployment.

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