Graph walkthrough · Micro · Labor market
A minimum wage above the market
The city sets a minimum wage above the equilibrium wage for fast-food work.
Step 1 of 3 · Before the floor
Fast-food workers earn 12 dollars an hour and 20 thousand of them are employed. The horizontal axis is the number of workers employed. The vertical axis is the hourly wage. Labor demand from restaurants and labor supply from workers cross at E₀.
The chain in words
Step 1
Before the floor
Fast-food workers earn 12 dollars an hour and 20 thousand of them are employed. The horizontal axis is the number of workers employed. The vertical axis is the hourly wage. Labor demand from restaurants and labor supply from workers cross at E₀.
Step 2
The floor appears
The city sets a floor of 15 dollars an hour. No curve moves: restaurants' demand for workers and workers' willingness to work are unchanged. At 15 dollars, more people want these jobs than restaurants will hire. The gap is unemployment.
Step 3
The gap stays
The wage cannot fall to clear the market, so the gap stays. Those who keep their jobs earn more. Those who lose them, or never get hired, earn nothing. Restaurants cut hours, automate ordering, or raise prices.
Takeaway. A binding minimum wage moves no curve: it holds the wage above equilibrium and leaves a surplus of workers, which is unemployment.
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Lesson: Competitive Labor Markets