Principles of Economics- Mankiw (5th) 440

Principles of Economics- Mankiw (5th) 440 - 452 PA R T S I...

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452 PART SIX THE ECONOMICS OF LABOR MARKETS high minimum wage forces the wage above the level that balances supply and de- mand. It therefore raises the cost of labor to firms and reduces the quantity of labor that those firms demand. The result is higher unemployment among those groups of workers affected by the minimum wage. Although those workers who remain em- ployed benefit from a higher wage, those who might have been employed at a lower wage are worse off. The magnitude of these effects depends crucially on the elasticity of demand. Advocates of a high minimum wage argue that the demand for unskilled labor is relatively inelastic, so that a high minimum wage depresses employment only slightly. Critics of the minimum wage argue that labor demand is more elastic, es- pecially in the long run when firms can adjust employment and production more fully. They also note that many minimum-wage workers are teenagers from middle-class families, so that a high minimum wage is imperfectly targeted as a
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