How can minimum wages affect employment?

• A. A minimum wage always reduces employment because firms cut hiring to afford higher wages.
• B. Minimum wages affect wages but do not change employment levels in competitive markets.
• C. A minimum wage always increases employment by boosting workers' incomes and demand for goods.
• D. If set above the competitive equilibrium wage, a binding minimum wage reduces employment by creating excess labor supply; if set below equilibrium it has no effect.

Answer: (D)