Labor Market Data

Below is some hypothetical data on the labor market.

Refer to Labor Market Data. If the government imposed a minimum wage of $7, what would unemployment be?

Question

Labor Market Data

Below is some hypothetical data on the labor market.

Refer to Labor Market Data.  If the government imposed a minimum wage of $7, what would unemployment be?

BlackTom AI · Accepted Answer

Begin by identifying the key data at the $7 wage: quantity demanded is 9,000 and quantity supplied is 14,000. The presence of a minimum wage above the market-clearing level typically creates excess supply (unemployment) in the labor market.

Option 0: 0 
This would imply no excess supply, which contradicts the observed behavior under a binding minimum wage where more people want to work than firms are willing to hire. Therefore, 0 is incorrect.

Option 2,000: This would reflect a smaller excess supply than what's actually present. Since the quantity supplied exceeds quantity demanded by 14,000 − 9,000 = 5,000 workers, 2,000 understates the unemployment due to the surplus of labor.

Option 3,000: Similar to 2,000, this still underestimates the true excess supply. The gap between labor supplied and demanded at the $7 wage is 5,000, not 3,000.

Option 5,000: The unemployment created by the minimum wage equals the surplus of labor supplied over labor demanded. With 14,000 supplied and 9,000 demanded, the excess is 14,000 − 9,000 = 5,000 workers. This matches the standard calculation for unemployment due to a binding minimum wage.

Putting it together, the only option that aligns with the observed surplus in the data is 5,000 unemployed workers. The mechanism is straightforward: a higher minimum wage often leads to more people willing to work than firms are willing to hire, creating unemployment equal to the difference between supply and demand at that wage.

Labor Market Data Below is some hypothetical data on the labor market. Refer to Labor Market Data. If the government imposed a minimum wage of $7, what would unemployment be?

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