From Figure 10.10 "Effects of Increasing the Real Minimum Wage", we can see that the wage elasticity of labor demand tells us everything we need to know about the effects of a change in the wage on employment. If the demand curve is relatively elastic, then a change in the minimum wage will lead to a relatively large change in employment. If the demand curve is relatively inelastic, then a change in the minimum wage will lead to a relatively small change in employment. This is intuitive because the elasticity of labor demand tells us how sensitive firms’ hiring decisions are to changes in the wage. An elastic demand for labor means that firms will respond to a small change in the wage by laying off a large number of workers, so the employment effect will be large. The elasticity of labor supply is not relevant if we are concerned only with employment effects. This is illustrated in Figure 10.11 "The Employment Effect of a Change in the Minimum Wage" and summarized in Table 10.1 "Employment Effects of a Change in the Real Minimum Wage".
The more elastic the labor supply curve, the bigger the change in labor supply for a given change in the real wage (Figure 10.12 "The Unemployment Effect of a Change in the Minimum Wage"). A bigger change in labor supply means a bigger change in unemployment. Combining this with Table 10.1 "Employment Effects of a Change in the Real Minimum Wage", we get the results summarized in Table 10.2 "Unemployment Effects of a Change in the Real Minimum Wage". If demand and supply are both inelastic, the change in the minimum wage has little effect on unemployment. The higher wage does not make much difference to firms’ hiring decisions (inelastic demand), and it does not induce many additional workers to look for a job (inelastic supply). The overall effect on unemployment is small. By contrast, if both curves are elastic, then an increase in the wage will lead to a big decrease in the number of jobs available and a big increase in the number of job seekers. If we can find good estimates of the elasticities of labor demand and supply, we will be able to make good predictions about the likely effect of an increase in the minimum wage.