Question

In a market with two sectors, one which is covered by minimum wage legislation and one which is not, the migration of unemployed workers from the covered sector to the uncovered sector will

A) All of these are correct

B) Increase the level of employment in the uncovered sector

C) Reduce wages in the uncovered sector

D) Reduce the negative employment effects of the minimum wage in the uncovered sector

Employment may increase after an increase in the minimum wage when

A) more people want to work at the new, higher wage.

B) the minimum wage is below the equilibrium level of wages.

C) discouraged workers drop out of the labor market.

D) independently, labor demand increases significantly at the same time.

Answer 1

A) Unemployed workers from the covered market will migrate to the uncovered market. In this manner there will be in increase in the labor force / labor supply in the uncovered market. As the supply curve shifts right, employment rises, wages fall and some dignity of the unemployed migrated workers is restored

D) When minimum wage is below the market wage it is not binding so any change in such wage does not increase or decrease employment. Neither an increase or decrease in labor force. But if market demand for labor shifts right and new wage is at least equal to the minimum wage, there can be higher employment.