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Unformatted text preview: for labor will result in unemployment. 4. How can an increase in the minimum wage cause unemployment? An effective minimum wage raises wages above the equilibrium wage rate. This causes a surplus in the labor market. This surplus is called unemployment. 5. Are there other reasons for unemployment? The efficiency wage theory maintains that employers may pay wages higher than the equilibrium wage rate. This will cause some unemployment. Another theory claims that imperfect information exists in the labor market and that firms, not knowing the equilibrium wage rate, may offer wages above this rate. 6. Is there such a thing as having too little unemployment? Is there a downside to having lots of people working? If unemployment falls too low, wages and prices may start to rise. Too little unemployment, therefore, can lead to an increase in inflation....
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This note was uploaded on 09/14/2009 for the course ECON 304L taught by Professor Staff during the Fall '07 term at University of Texas at Austin.
- Fall '07