Minimum wages create unemployment in markets where they create a
Group of answer choices
A: surplus of labor. Unemployment of this type is called frictional.
B: shortage of labor. Unemployment of this type is called structural.
C: surplus of labor. Unemployment of this type is called structural.
D: shortage of labor. Unemployment of this type is called frictional.
Answer. C: surplus of labor. Unemployment of this type is called structural.
Minimum wage legislation may generate an oversupply of labor in the existing labor market when it is set high above the equilibrium wage, which is usually determined by the forces of the market. If the mandatory minimum wage is greater than the equilibrium of the labor, the quantity of the supplied labor is in excess of that of the demand, which creates surplus of workers to hire. The outcome of such phenomenon – labor surplus induced by a minimum wage requirement – is structural unemployment which is one of the current challenges that governments face when formulating the strategy. The unemployed, categorised as ‘structural’ arise because the skills the workers possess or the number of people looking for a job does not match the number of wokers available in their local marketplace. The background of this is the situation that due to a minimum wage there are more job seekers that there are job openings. A necessary result is structural unemployment. As well, the minimal wages could not decrease the unemployment to the degree of frictional sort which means unemployment in the process of job transitions.