If Indiana increases the minimum wage from $7

Economics Apr 01, 2021

If Indiana increases the minimum wage from $7.25 to $7.75, what would be the likely effects on the labor market?

Group of multiple answer choices

Wages for the lowest-paid workers do not change but employment increases

Wages for the lowest-paid workers increase but employment does not change

Wages for the lowest-paid workers do not change but employment decreases

Wages for the lowest-paid workers increase and employment increases

Wages for the lowest-paid workers increase and employment decreases

Expert Solution

The correct option is 5th "Wages for the lowest-paid workers increase and employment decreases". As we know, When minimum wage rate increases, then lowest paid workers start getting the increased level of minimum wage. So, there wage rate increases. But, it also increases the cost to the firms, so they demand less workers. As a result, employment decreases.

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