When the government raises the minimum wage above market equilibrium, what effect does it usually have on supply?

When the government raises the minimum wage above the market equilibrium, the immediate effect on supply is typically a reduction in supply. This occurs because higher minimum wage increases the cost of labor for businesses. As companies face higher wages, they may need to adjust by either reducing the number of employees they can afford to hire or by implementing measures to cut costs in other areas.

Though higher wages could attract more individuals to seek employment in that sector, the overall impact of increasing labor costs can result in some businesses choosing to reduce their workforce or invest in automation instead of hiring more workers. This means that even if there might be an initial intention to increase the labor supply, the reality is that businesses respond to those increased costs with a reduction in the number of available jobs, thus reducing the overall supply in the labor market.

This framework is important for understanding labor markets and the effects of government intervention in wage-setting policies.