... with the transition of the economy through the business cycle. When there is an economic recession, we expect to see a rising level of unemployment because of plant closures and worker layoffs. This is caused by a fall in demand leading to a contraction of output from many industries. Classical unemployment is thought to be the result of real wages being above the market clearing level leading to an excess supply of labour. Some economists believe that the introduction of a national minimum wage may create some classical unemployment in industries. The diagram below illustrates the effect of the national minimum wage. Before the national minimum wage, demand was for 75 workers. After the introduction of the minimum wage rate, supply is 100 but the demand is only 50 leading to excess supply and unemployment increases. The supply of labour increased because more works make them selves available for higher paid employment. Technological ...

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