Question

Suppose that the market for low-wage labor is perfectly competitive and initially in equilibrim. If the government establishes an effective minimum wage, which of the following will ocur?

Answer 1

Answer:

Employment of low wage workers will decrease and which in turn increase the unemployment.

Explanation:

Perfectly competitive labor market, is the one which is described as the composite of many firms or companies that are in the competition for the workers. The firms will not be in power to set the wages for the workers, the market also determines the competitive wage.

But if this is a low wage labor and on that the government establish or form the minimum wage then it will result in the employment of the low wage workers will decrease and the consequence of which is increase in the unemployment.

Note: Options are missing so providing the direct answer