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In the (neo) classical theory, the intersection between the demand curve for labor and the supply curve of labor determines the equilibrium real wage (
In the (neo) classical theory, the intersection between the demand curve for labor and the supply curve of labor determines the "equilibrium real wage" ( Remember that the real wage is the ratio between the nominal wage and the price level In the (neo) classical theory, the intersection between the demand curve for labor and the supply curve of labor determines the "equilibrium real wage" ( Remember that the real wage is the ratio between the nominal wage and the price level (nominal wage/consumer price index ) Therefore, the excess supply of labor (unemployment) is explained by wage rigidities that prevent the self-correction mechanism in the labor market. According to the neoclassical theory, should real wages increase or decrease in order to reduce the unemployment rate? Explain
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