In Stenland, many workers have been complaining that they cannot

In Stenland, many workers have been complaining that they cannot survive on minimum wage, the lowest wage an employer is permitted to pay. Many workers have been complaining about the minimum wage in the country. They find that the minimum wage is too low – they can’t survive on it.

The government is proposing to raise the minimum wage. The government plans to raise the minimum wage.

Many employers who pay their workers the current minimum wage argue that if it is raised, unemployment will increase because they will no longer be able to afford to employ as many workers. – Many employers who pay their workers the minimum wage have an issue with the government’s proposal. They argue that if the minimum wage is raised, they will not be able to afford to employ as many workers, and therefore unemployment will increase.

Gist

1. Workers are unhappy with the current minimum wage. They complain that they cannot survive on it.
2. The government is proposing to increase the minimum wage.
3. Employers who pay the minimum wage have raised a concern against the government’s proposal. They argue that increasing the minimum wage will lead to increased unemployment. Because with a higher minimum wage, they will not be able to employ as many workers.

Gaps in the employers’ logic

1. Don’t the employers have margins to afford to pay a higher amount as salaries and wages to their employees?
2. Even if these employers (those who pay their workers the current minimum wage) can’t afford to pay higher salaries, can’t these workers get jobs with other employers?
3. Could better wages translate into higher motivation for employees, and thereby higher revenues for the employers? If so, that higher revenue could offset the higher costs, and the employers could afford to pay the higher wage to all workers.

Which of the following, if true in Stenland, most strongly supports the claim that raising the minimum wage there will not have the effects that the employers predict?

The question stem has the phrase 'most strongly supports'. Let's be clear about what exactly we need to support.
We need to support a claim - the claim that raising the minimum wage will not have the predicted effects.
What are the effects that these employers predict?
1. These employers will no longer be able to employ as many workers as they currently do.
2. As a consequence, unemployment will increase.

Framework: We need to support the notion that raising the minimum wage will not lead to lower affordability to employ workers, and, as a consequence, unemployment will not increase.





(A) For any position with wages below a living wage, the difficulty of finding and retaining employees adds as much to employment costs as would raising wages.
Correct.
‘Living wage’ is a new term. I understand the term to mean a wage on which an employee can live (survive).

The passage mentions that “many workers have been complaining that they cannot survive on minimum wage”. i.e., currently, workers cannot survive (live) on minimum wage. So, I’m thinking that the current minimum wage would be lower than a living wage.

If the wage for a position is lower than the living wage, as is the case with minimum wage jobs, employers have an additional cost associated with finding and retaining employees.

Thus, employers who hire minimum wage workers would currently be bearing this cost.

In fact, according to the answer choice, this additional cost is equivalent to the cost they would need to bear if minimum wages were increased.

So, if the minimum wage is raised, i.e. if the employers start paying the workers a higher wage – one that’s closer to a living-wage, the cost associated with finding and retaining employees would go down. Overall, the additional cost in payroll would be offset (at least to an extent) by the reduction in the cost of finding and retaining such employees.

Thus, this answer choice supports the claim that raising the minimum wage will not have the predicted effects.

Note:

1. Many students wonder if we can assume ‘living wage’ to be the same as ‘current minimum wage’. Interestingly, many themselves point out that if the two are the same, how can any position have wages below a living wage?
I don’t think that the two terms refer to the same wage. That would not make sense, since employers are not permitted to pay wages below the minimum wage. Plus, there is no reason to believe that the word ‘living’ implies ‘minimum’. As I’ve explained above, I think ‘living wage’ means a wage needed to live (survive).
2. A flawed reason I’ve come across for rejecting this answer choice is: What if workers are desperate to get any job, and they don’t cause issues related to finding and retaining employees even if they earn the minimum wage?
The question stem states “Which of the following, if true in Stenland, …”. So, we have to accept the answer choices as true. Our job is not to check their validity. Our job is to accept them as true, and then check whether they support the claim. The answer choice states that the cost associated with finding and retaining employees is the same as the additional payroll cost employers would need to bear if minimum wages are increased. I’m not going to question now whether these costs are the same or not.

(B) Raising the minimum wage does not also increase the amount employers have to contribute in employee benefits.
Incorrect.
Statement: Raising the minimum wage does not come with an additional cost for the employers (contribution to employee benefits).

Had raising the minimum wage come with an additional cost, I’d believe even more that the effects the employers predicted will actually happen.

By that logic, if raising the minimum wage is not associated with a particular additional cost, I do believe a little bit less that the predicted effects will actually happen. However, the shift is very marginal. The employers claim that raising the minimum wage itself will increase the costs so much that they’ll need to let go of some workers, and thus unemployment will increase. So, the situation, according to the employers, would already be bad if minimum wages are increased. This option just indicates that the situation is not worse than what the employers think.

(C) When inflation is taken into account, the proposed new minimum wage is not as high as the current one was when it was introduced.
Incorrect.
“When inflation is taken into account” essentially refers to purchasing power.

Two different minimum wages at two different points in time are being compared in this answer choice.

1. Purchasing power of the proposed minimum wage – today.
2. Purchasing power of the current minimum wage – back when it was introduced.

Say,

1. the current minimum wage is $7, and it was introduced 10 years ago
2. the proposed minimum wage is $10, and it will be implemented this year

So, according to this answer choice, people could buy more with $7 ten years ago than they can buy with $10 today.

As far as the employers are concerned though,

1. Say there are 1000 workers who earn minimum wage.
2. The employers are currently paying $7 as minimum wage – that’s a total of $7,000 dollars.
3. If the minimum wage were increased to $10, the employers would need to pay $10,000 instead of $7,000 to these 1000 workers.
4. That’s the issue here. Employers claim that this $3,000 increase would be too much. They can’t afford to pay $10,000 to these workers. And they claim that because of this, they’ll need to let go of some workers. And thus, unemployment would increase.

How much people could buy with $7 ten years ago, and how that compares with how much they can buy with $10 today is irrelevant to the employers’ point.

(D) Many employees currently being paid wages at the level of the proposed new minimum wage will demand significant wage increases.
Incorrect.
If this were the case, then perhaps the employers would face an even more serious financial crunch. I’m thinking that if some other employees also need to be paid higher wages, the employers would find it even more difficult to be able to afford to employ as many workers.
This answer choice weakens the claim.

(E) Many employers who pay some workers only the minimum wage also pay other workers wages that are much higher than the minimum.
Incorrect.
First off, what does the statement mean?
Many companies that employ some workers who earn the minimum wage, also have workers who earn wages that much higher. Maybe they have more experience or are more qualified.

If the minimum wage is increased, the current minimum-wage-workers would need to be paid a higher amount. The issue is that can the employers afford to pay that higher amount?

1. This answer choice does not indicate that the employers can compensate for the minimum wage increase by reducing the wages of the higher-paid guys. Think about it. Is it common that senior employees’ salaries are reduced when companies hire freshers at higher salaries than before?
2. It also does not indicate that because they are already paying higher wages to some employees, they can afford to increase wages for the minimum-wage-workers. Say they are paying higher wages to the supervisors. Does that mean they can afford to pay higher wages to the entry-level staff too? That would depend on how much funds the employers have, and not on how much they pay other employees, no?

No impact.

To support the claim that raising the minimum wage in Stenland will not have the effects predicted by employers, we need to find an option that weakens their argument. Among the options provided, the one that most strongly supports the claim is option (A):

(A) For any position with wages below a living wage, the difficulty of finding and retaining employees adds as much to employment costs as would raising wages.

This option suggests that employers already face challenges in finding and retaining employees when wages are below a living wage. It implies that the current minimum wage in Stenland is not sufficient for workers to meet their basic needs, which in turn affects employers' ability to hire and retain employees. By raising the minimum wage, employers may attract a larger pool of potential employees who are willing to work for the new minimum wage, thus mitigating the predicted increase in unemployment.

In Stenland, many workers have been complaining that they cannot survive on minimum wage, the lowest wage an employer is permitted to pay. The government is proposing to raise the minimum wage. Many employers who pay their workers the current minimum wage argue that if it is raised, unemployment will increase because they will no longer be able to afford to employ as many workers.

Which of the following, if true in Stenland, most strongly supports the claim that raising the minimum wage there will not have the effects that the employers predict?

Okay, so the claim is: If current minimum wages are raised the unemployment will increase followed by the reasoning (because they will no longer be able to afford to employ as many workers). Question asks us to select the option where the claim wont be true.

Normally I am agnostic to questions, however this one I truly despise. That being said let me list down my thought process

Top of mind the stem says that many companies pay workers current min. wages so there seems to be a visible impact of the change. I wont waste time pre-thinking the plausible answers (a method to be used on a case by case basis) here but would rather look at the options for POE.

(A) For any position with wages below a living wage, the difficulty of finding and retaining employees adds as much to employment costs as would raising wages. Interesting option, says underpaid workers (retained/ new) will end up costing companies as much as workers as workers who are paid the updated wages.

Now as to why I said I despite this question, The answer A by itself is not something that would have made a dent but because of POE: other options not in-line with the thought/ logic used I had to accept A. Fair confession: I did overthink A (Unless the employers/ companies want to reduce their business they cannot fire employees without replacement AND Reducing revenue wont be a firm's response to rising expenses). I spent a considerable time on this question, another reason for me to despise it.

(B) Raising the minimum wage does not also increase the amount employers have to contribute in employee benefits. Still employers / companies pay higher salaries, so reject.

(C) When inflation is taken into account, the proposed new minimum wage is not as high as the current one was when it was introduced. Employers still end up paying higher salaries even though workers effective income is lower, so reject.

(D) Many employees currently being paid wages at the level of the proposed new minimum wage will demand significant wage increases. We are looking for option to reject the claim, while this option tells us that employers will actually have to pay higher for others as well, so reject.

(E) Many employers who pay some workers only the minimum wage also pay other workers wages that are much higher than the minimum. Now this is an interesting choice in a way (say employers rejig pays of managers to compensate workers but what if these managers move to other employers who don't do such a thing to firms where the min wages issue doesn't persist.... and we could go on conjuring situations such as these). Just because some employers are being paid higher than min. wages doesn't mean they are being over-paid for their work, may be possible they are still underpaid for their work.

Well, objectively speaking, this option doesn't tell us anything about how some people being paid more impacts other workers. So rejected.

Hope the above explanation helps you get past this question. Cheers

Hi GMATNinja

I need some help in understanding in which part of option A that I misinterpreted or misread while reading that sentence.

I interpreted the option as - the employers already have to incur a certain cost in hiring and retaining employees for positions below living wage and that associated cost is the same if the wages were to be raised

I thought then on top of the cost already incurred by the employers in hiring and retaining employees, raising the wages would lead to more costs that the employer has to incur and could lead to unemployment

I understand the explanation provided on why A may not lead to unemployment. But I need to know why I interpreted this question in this way rather than the way in which the explanation is provided.

I want to know why the cost of hiring and retaining employees would then disappear as soon as the wages are raised because since the wage increase is the bare minimum why would the employers then not have problems hiring and retaining employees since they could always move to a better paying job.

As you suggest, (A) does not prove 100% that raising the minimum wage WON'T increase unemployment. But as the question says, we aren't looking for an answer that will 100% disprove the employers prediction. Rather, we should ask ourselves the following -- of the available answer choices, which "most strongly supports" the claim that the employers prediction is wrong?

So how can you spot (A) as the correct answer? How can you avoid eliminating it in the first place? Well, for each answer choice, try asking yourself how it might affect the argument. Let's try that with answer choice (A):


Presumably, employers are having trouble finding and retaining minimum wage employees because people can't survive on a minimum wage. If the minimum wage were raised, would this entirely solve this problem? We definitely don't have enough information to reach that conclusion. BUT, we can conclude that this would support the idea that the employers are wrong.

Because if raising wages makes it easier to find and retain employees, as it presumably would, employers would spend less money on these costs. And as a result, they'd be less likely to reduce employment.

Again, while (A) doesn't definitively prove that the employers are wrong, it is the best available option that supports this idea. For that reason, (A) is correct.

I hope that helps!

The GMAT feels a little fast-and-loose with the wording here: Equating a 'minimum wage' with a 'livable wage' (and thus selecting Option A) seems odd. For all we know, an increased minimum wage, as proposed, is still below a livable wage, and hiring will remain as expensive as before the increase. 

The stem alludes to survival, but does not state nor imply that the proposed increase in minimum wage will result in a 'livable wage'.

Especially with how 'by the word' the GMAT often wants to be, I find this difficult to see Option A as an acceptable answer.  

­The wording of the question is key: "Which of the following, if true in Stenland, most strongly supports the claim that raising the minimum wage there will not have the effects that the employers predict?" We aren't looking for something that PROVES that the employers will be wrong.

With that in mind, the wording of choice (A) is fine.

If a worker "cannot survive" on a certain wage, then we can certainly describe that wage as being below a living wage, since a living wage would be one that a worker CAN survive on. That's not explicitly written in the passage, but saying that you can't "survive" on a certain wage is the same as saying that you can't live on that wage.

Will the increase in the minimum wage bring every worker up to a living wage? Maybe not, but that's fine. (A) still gives us reason to believe that increasing the minimum wage will, paradoxically, decrease certain employment costs for the employers who are paying minimum wage (costs caused by the difficulty of finding and retaining employees). Those costs would presumably decrease as wages get closer and closer to a living wage, regardless of whether the increase falls short of the "living wage" level.

Again, this doesn't PROVE anything, but we aren't looking for proof -- we just need something that SUPPORTS the claim that raising the minimum wage there will not have the effects that the employers predict. (A) does exactly that by telling us that the increase in wages paid will be offset by a decrease in other employment-related costs.

I hope that helps!