and sometimes even below it, it has not had a large effect in creating an excess supply of labor. However, if the

minimum wage increased dramatically—say, if it doubled to match the living wages that some U.S. cities have

considered—then its impact on reducing the quantity demanded of employment would be far greater. The

following Clear It Up feature describes in greater detail some of the arguments for and against changes to the

minimum wage.
96 4 • Labor and Financial Markets

CLEAR IT UP

What’s the harm in raising the minimum wage?
Because of the law of demand, a higher required wage will reduce the amount of low-skill employment either in

terms of employees or in terms of work hours. Although there is controversy over the numbers, let’s say for the sake

of the argument that a 10% rise in the minimum wage will reduce the employment of low-skill workers by 2%. Does

this outcome mean that raising the minimum wage by 10% is bad public policy? Not necessarily.
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