Consider a low wage labor market. Workers in this market are not presently covered by the minimum wage, but the government is considering implementing such legislation. If implemented, this law would require employers in the market to pay workers a $5 hourly wage. Suppose all workers in the market are equally productive the current market clearing wage rate is $4 per hour, and that is this market clearing wage there are 600 employed workers. Further suppose that under the minimum wage legislation only 500 workers would be employed and 300 workers would be unemployed. Finally assume that the market demand and supply curves are linear and that the market reservation wage, the lowest wage at which any worker in the market would be willing to work, is $1. Compute the dollar value of the impact of the policy on employers, workers, and society as a whole.
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