A case study in this chapter discusses the federal minimum-wage law. a.Suppose the minimum wage is above the equilib-rium wage in the market for unskilled labor. Using a supply-and-demand diagram of the market for unskilled labor, show the market wage, the number of workers who are employed, and the number of workers who are unemployed. Also show the total wage payments to unskilled workers.b.Now suppose the secretary of labor proposes an increase in the minimum wage. What effect would this increase have on employment? Does the change in employment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither?c.What effect would this increase in the minimum wage have on unemployment? Does the change in unemployment depend on the elasticity of demand, the elasticity of supply, both elasticities, or neither d.If the demand for unskilled labor were inelastic, would the proposed increase in the minimum wage raise or lower total wage payments to un-skilled workers? Would your answer change if the demand for unskilled labor were elastic?
Acknowledgments The authors would like to thank the following colleagues who have reviewed the text and provided comprehensive feedback and suggestions for improving the material: Neil Alperstein Loyola College William Arden Augsburg College Dan Bagley University of South Florida Carl Bergemann Arapahoe Community College Samuel Bradley Texas Tech University Rusty Brooks Houston Baptist University Janice Bukovac-Phelps Michigan State University Yolanda Cal Florida International University–BBC campus Patrali Chatterjee Montclair State University Sudhir Chawla Angelo State University
