The Wage-Setting Model

Minimum Wage Impact in a Company Town

A small, isolated town has a single large factory that is the primary employer for the local workforce. The factory currently pays its workers $12 per hour. The government introduces a legally binding minimum wage of $15 per hour. Assuming the factory's demand for labor has not changed, what is the most likely immediate effect on the wage rate and the number of workers employed by the factory?

Explaining the Counterintuitive Effect of Minimum Wage

In a labor market where a single firm is the dominant employer, the introduction of a legally-mandated minimum wage set above the current wage level will necessarily cause a decrease in the number of people employed.

Evaluating the Universal Application of Minimum Wage Policy

In a labor market dominated by a single employer, the firm has the power to set wages. If a government imposes a minimum wage that is higher than the current wage the firm is paying, why might this policy lead the firm to increase the number of workers it employs?

Match each labor market scenario with the most likely outcome of imposing a new, legally binding minimum wage.

Interpreting Minimum Wage Impact Data

Contrasting Minimum Wage Effects in Different Market Structures

Consider a labor market where a single firm is the primary employer, giving it significant power to set wages. If a government introduces a minimum wage that is higher than the wage the firm is currently paying, how does this policy fundamentally change the firm's cost of hiring an additional worker, potentially leading to an increase in employment?