A government successfully implements a new policy that increases the national employment level by 5%, but this policy does not alter average worker productivity or the degree of competition among firms. Based on the model where firms set prices as a markup over their costs, what is the direct consequence of this higher employment on the price-setting real wage?

Impact of a Labor Supply Shock

According to the model where firms set prices as a markup over their labor costs, a significant increase in the national level of employment will cause the price-setting real wage to decrease.

Rationale for the Horizontal Price-Setting Curve