Which of the following is a potential drawback of implementing a minimum wage as a social policy?

• A. It always results in higher overall economic growth.
• B. It reduces income inequality without any negative side effects.
• C. It guarantees that all workers will earn above the poverty line.
• D. It may lead to increased unemployment among low-skilled workers.

Answer: (D)

Verified step by step guidance

1. Understand the concept of a minimum wage: it is a legally mandated lowest hourly wage that employers can pay workers.
2. Recognize that while a minimum wage aims to increase earnings for low-income workers, it can also affect the labor market equilibrium.
3. Analyze the potential impact on employment by considering the labor demand and supply curves: a higher minimum wage can create a price floor above the equilibrium wage.
4. Understand that when the minimum wage is set above the equilibrium wage, it may cause employers to reduce the quantity of labor demanded, potentially leading to unemployment, especially among low-skilled workers.
5. Conclude that the potential drawback of implementing a minimum wage is that it may increase unemployment among low-skilled workers, despite its goal to improve income.