Which policy creates a surplus of labour and unemployment when set above the equilibrium wage?

• A. Minimum wage
• B. Rent control
• C. Price deflator
• D. GDP growth rate

Answer: (A)

Setting a wage above the market-clearing level creates a surplus of labor because more workers are willing to work at that higher wage than firms are willing to hire. The demand for labor falls as wages rise, while the supply of labor rises, so the two quantities don’t match and unemployment results. A minimum wage only causes this unemployment when it is binding—above the equilibrium wage; if it were at or below that level, it wouldn’t create a surplus of labor. Other options don’t directly create a surplus of labor in the same way: rent control affects housing supply, a price deflator is an inflation-adjustment tool, and the GDP growth rate is a macro outcome, not a wage policy.