Question

Suppose the minimum wage is above the equilibrium wage in the market for unskilled labour. Using a supply-and-demand diagram of the market for unskilled labour, show the market wage, the number of workers who are employed. Also, show the total wage payments to unskilled workers.

Answer 1

If the minimum wage is above the equilibrium wage in the market for unskilled labour, then there is a surplus of labour, because the market wage is above the equilibrium wage, and the number of workers who are employed is lower than at equilibrium. The total wage payments to unskilled workers may increase or decrease depending on elasticities of demand and supply for labour.