The government of a country is considering increasing the minimum hourly wages b

Question

The government of a country is considering increasing the minimum hourly wages by 10 percent. Economists argue that this is going to have a negative effect on employment in the long term.

Which of the following, if true, would strengthen the economists' viewpoint?

A.

The minimum wage in the country is currently 3 percent below the newly-revised poverty line.

B.

The increase in the minimum wage is expected to reduce frictional unemployment in the economy.

C.

Several research studies have concluded that increases in the minimum wage are likely to reduce school enrolment among teenagers.

D.

Even with a 10 percent increase, the minimum wage in the country will still be lower than those of neighboring countries.

E.

Due to labor shortage, companies in the country are willing to pay efficiency wages for even the most basic jobs.

Explanation / Answer

B) The increase in the minimum wage is expected to reduce frictional unemployment in the economy.

As the minimum wages are increased, less number of people would leave the job to find a better one. Thus new people would not get a chance to get the employmnet opportunity. As a result there would be a negative effect on employment in the long term.

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