medium · GMAT Verbal
Passage: Economists have long debated the impact of minimum wage increases on employment levels. The 'standard model' suggests that higher labor costs lead employers to reduce their workforce. However, recent empirical studies of fast-food restaurants found that when the minimum wage was raised in one state but not in a neighboring state, employment levels in the affected restaurants actually remained stable or even slightly increased. This suggests that the standard model may not account for factors like increased worker productivity or reduced employee turnover following a wage hike.
The information most strongly supports which of the following statements?
- Raising the minimum wage reliably reduces employee turnover enough to offset any rise in labor costs.
- Fast-food restaurants are less affected by labor costs than businesses in other industries.
- Increasing the minimum wage is certain to increase employment levels in all sectors of the economy.
- Increases in worker productivity are the sole reason why employment levels might remain stable after a wage hike.
- The standard model's prediction about minimum wage and employment is not always borne out in empirical observations.
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