Question

4. Suppose you are interested in the impact of minimum wages on employment. You collect the following data on two jurisdictions:

Jurisdiction	Year	Employment (million)	Minimum wage
1	2005	2.6	15
1	2010	2.4	15
1	2015	2.1	16
2	2005	1.3	16
2	2010	1.4	16
2	2015	1.5	16

Consider the “before and after” approach using 2010 and 2015, which encompass an increase in the minimum wage in jurisdiction 1. The results would show:

a) a positive relationship between the change in the minimum wage and the change in employment.

b) a negative relationship between the change in the minimum wage and the change in employment.

c) no relationship between the change in the minimum wage and the change in employment.

d) none of the listed options.

Answer 1

Sol.) The results would show option b) i.e " a negative relationship between the change in the minimum wage and the change in employment. "

Minimum wage is the wage rate established by government regulation that specifies the lowest rate at which labour may be employed by the employer.

According to the supply and demand model and considering before and after approach of the jurisdiction1 shown above between 2010 and 2015, increase in the minimum wage (from 15 to 16) decrease the employment of minimum-wage workers from 2.1 million to 2.4 million.

Positive correlation is a relationship between two variables in which both variables move in the same direction. A positive correlation exists when one variable decreases as the other variable decreases, or one variable increases while the other increases.

Negative correlation or negative relationship is a relationship between two variables in which one variable increases as the other decreases, and vice versa . Negative correlation or inverse correlation is a relationship between two variables whereby they move in opposite directions