Key terms
- Minimum wage
- A minimum wage is a price floor that makes it illegal for an employer to pay less than a set hourly rate.
- Binding price floor
- A price floor is binding when it sits above the equilibrium wage and so determines the market outcome.
The standard model predicts that some jobs go
Because of the law of demand, a higher required wage reduces the amount of low-skill employment, either in the number of people employed or in the hours they work. Above the equilibrium wage the quantity of labour supplied is greater than the quantity demanded, so some people who want work at that wage cannot find it.
1 of 2
No minimum wageThe wage settles at We, where Qe workers are wanted and Qe want to work.