If the current minimum wage is $7.50 an hour, there are 10 million workers who earn the minimum wage, and the elasticity of demand for low skilled labor is -0.2.
a. If the minimum wage is raised to $9 an hour, how many minimum wage jobs will there be?
b. Suppose the elasticity of labor supply is 0.1 and the unemployment rate for minimum wage workers is 10% with the minimum wage at $7.50. If the minimum wage is increased to $9, by how much will the number of unemployed workers increase? What will the new unemployment rate be?
c. Suppose the average minimum wage worker works 2000 hours a year. What are total wages paid to minimum wage workers at $7.50 and at $9. Give your answer in billions of dollars.
d. Draw and label a supply-demand diagram showing the number of employed and unemployed workers when the minimum wage is $7.50 and $9.