What type of unemployment is typically caused by the implementation of minimum wage laws?

The type of unemployment typically caused by the implementation of minimum wage laws is referred to as real wage unemployment. When minimum wage laws mandate that employers pay a wage that is above the equilibrium level that would naturally be set by the supply and demand for labor, it can lead to a situation where the quantity of labor supplied exceeds the quantity of labor demanded. This misalignment can result in firms hiring fewer workers, which may increase the level of unemployment as some workers may not be able to find jobs at the higher wage levels.

Real wage unemployment specifically highlights the effects of wage rigidity where prices (or in this case, wages) do not adjust downwards easily. This type of unemployment may be more pronounced among low-skilled or entry-level workers who are often most affected by changes in minimum wage laws, as employers may reduce hiring or even lay off workers to cope with higher labor costs.

Understanding this concept is essential for analyzing the impacts of minimum wage policies on the labor market and the overall economy.