Ambiguous Employment Effect of Simultaneous Upward Shifts in WS and PS Curves
When both the wage-setting (WS) and price-setting (PS) curves shift upward, the net impact on equilibrium employment is uncertain. This ambiguity arises from two conflicting forces. On one hand, an upward shift in the PS curve can reduce firms' profit incentive to restrict employment, potentially leading to more hiring. On the other hand, firms become less profitable overall, which could lead to some going bankrupt and a subsequent decrease in employment. The ultimate effect on employment is determined by the relative magnitude of the shifts in the WS and PS curves.
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Ch.1 The supply side of the macroeconomy: Unemployment and real wages - The Economy 2.0 Macroeconomics @ CORE Econ
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Ambiguous Employment Effect of Simultaneous Upward Shifts in WS and PS Curves
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