A hypothetical labor market is depicted in a standard supply and demand diagram. The labor supply and labor demand curves intersect at an equilibrium wage of $25 per hour, where 8 million people are employed. The total labor force in this economy is 10 million people. Based on this information, what is the quantity of voluntary unemployment?

Consider a standard graphical model of the labor market where the horizontal axis represents the number of workers and the vertical axis represents the wage rate. The labor supply and demand curves intersect at an equilibrium employment level of L* and an equilibrium wage of W*. A vertical line at quantity LF represents the total labor force, with LF being greater than L*. Which of the following horizontal distances correctly measures the quantity of voluntary unemployment?

Analyzing a Labor Market Diagram

In a standard labor market diagram with the wage rate on the vertical axis and the quantity of labor on the horizontal axis, the quantity of voluntary unemployment is measured as the vertical distance between the equilibrium wage and the wage demanded by unemployed workers.

Impact of Wage Changes on Voluntary Unemployment