question archive You work for an unemployment agency that distributes unemployment checks to unemployed workers in your state
You work for an unemployment agency that distributes unemployment checks to unemployed workers in your state
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You work for an unemployment agency that distributes unemployment checks to unemployed workers in your state. Your boss recently learned that the President proposed a 21 percent increase in the minimum wage, and wants you to provide her with an estimate of the number of additional workers who will file for unemployment compensation claims next year if the bill passes. Based on library research at a nearby university, you learn that about 200,000 workers in your state earn at or below the current minimum wage. Further library research turns up a study that reports the own price elasticity of demand for minimum wage earners to be -0.30. Based on your findings,
how many additional workers do you think will file unemployment claims in your state?
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Answer:
Since the elasticity of demand for minimum wage earners equals - 0.3, the 21 percent increase
in the minimum wage would decrease the quantity demanded of minimum wage earners by
6.3 percent.
This would translate into .063 x 200,000 = 12,600 lost jobs, and presumably,
12,600 additional workers who file unemployment claims. Your boss may need to hire some
additional workers to help process claims if the bill passes.
