Answer:
The best answer to the question is OD. Fewer workers will be employed since the wage increase will induce managers to seek to substitute other inputs for the now relatively more expensive labor. This answer is based on the basic economics 101 explanation of how an increase in the minimum wage affects the labor market. According to this explanation, an increase in the minimum wage reduces the quantity of labor demanded by firms, because labor becomes more costly relative to other inputs, such as capital, technology, or materials1. Firms may try to use less labor and more of other inputs to produce the same output, or they may reduce their output and scale down their operations. This leads to a decrease in employment and an increase in unemployment among low-wage workers2.
The other answers are incorrect for the following reasons:
OA. The same number of workers will be employed since a restaurant’s operation requires a fixed amount of labor. This answer is incorrect because it assumes that the restaurant’s production function is fixed and that labor is the only input. In reality, restaurants can adjust their production function and use different combinations of inputs to produce the same output. For example, they can use more machines, such as self-service kiosks or automated fryers, to replace some of the tasks performed by workers2.
OB. More workers will be employed since the wage increase tells managers that more workers are available. This answer is incorrect because it confuses the supply of labor with the demand for labor. The wage increase does not indicate that more workers are available, but rather that workers are more expensive. The supply of labor may increase as a result of the wage increase, as more people are willing to work at a higher wage, but this does not mean that firms will demand more labor. In fact, firms will demand less labor as they face higher costs1.
OC. More workers will be employed since the wage increase encourages people to seek jobs at these restaurants. This answer is incorrect because it also confuses the supply of labor with the demand for labor. The wage increase may encourage more people to seek jobs at these restaurants, but this does not mean that these restaurants will hire more workers. In fact, these restaurants will hire fewer workers as they face higher costs1.