Imagine that local suburban leaders decide to enact an minim

Imagine that local suburban leaders decide to enact an minimum wage increase from $7.25 an hour to $7.75 an hour. Will the community lose more jobs if the nearby city votes to increase the minimum wage from $7.25 to $7.75? Explain your answer.

Solution

Yes the community will lose jobs.

Minimum wage is the efficient when it is above free market equilibrium wage. At this point labor demanded is less than labour than labour supply. Employers demand less number of workers as the cost of production has increased. There is a surplus of labor in the market which includes some of those who were employed earlier.

Increasing minimum wage even more will only result increase labour supplied and decrease in labor demanded. This is now a higher labour surplus. Thus people who were earlier employed are now jobless.