If the minimum wage is $7.50, employers will not be able to attract enough workers. This causes them to raise the wage until the quantity of labor supplied is equal to the quantity they demand (this occurs at $10). That is, the shortage puts upward pressure on wages and the market is able to reach equilibrium.

If the minimum wage is instead set at $10.50, employers will attract more workers than they are willing to hire. Because the minimum wage prevents employers from lowering wages to the equilibrium rate, a minimum wage of $10.50 is considered binding.

A binding minimum wage will contribute to a persistent surplus of labor in this market, generating structural unemployment. Structural unemployment is unemployment that arises from a mismatch between the skills of the existing labor force and those required to perform available jobs. One source of structural unemployment is minimum wage legislation, which holds wages above the productivity levels of less skilled workers, who are thus ill-suited to existing jobs. In this scenario, the quantity of labor supplied will continue to exceed the quantity of labor demanded as long as the minimum wage remains above the market equilibrium wage. The resulting surplus of labor creates a pool of unemployed workers—people who would like to work at the prevailing minimum wage, but who cannot find a job.