Question

Suppose a state passes a minimum wage law that increases the minimum wage from $5/hour to $20/hour. The equilibrium wage prior to the minimum wage hike was $10/hour. Which is likely to result from increasing the minimum wage? The state will experience full employment. The labor market will become more efficient. Some employers and workers will agree on a wage of less than $20/hour and not report the wages to the government. Employers will demand more labor than workers will supply. This result of increasing the minimum wage is an example of a quantity control. Black market. License. Quota rent.

Answer 1

Answer: Some employers and workers will agree on a wage less than $20 and not report the wages to the government; black market

Explanation: When the minimum wage is set above the equilibrium wage it leads to a surplus of labor in the market. There are more job seekers than the firms demand at the minimum wage of $20. Thus, the only possible option will be that some employers and workers will agree on a wage less than $20 and not report the wages to the government. When this happens it leads to black marketing. Black market is an underground economy the transactions of which are not reported to the government.