A general theory of wage determination can be expressed using the following equation W = pe Fu, z) where W is the aggregate nominal wage pf is the expected price level u is the unemployment rate z is a catch-all variable reflecting other factors that affect wages An increase in the expected price level leads to an increase in the nominal wage since both workers and firms care about wages If we view wages as being determined by worker - employer bargaining, then lower unemployment strengthens workers' bargaining power This indicates that a decrease in unemployment leads to in the nominal wage One of the factors in z the catch-all variable, is the minimum wage a price floor below which the nominal wage cannot go A decrease in this factor will be expected to the nominal wage