In a diagram where the real wage is on the vertical axis and employment is on the horizontal axis, an economy's equilibrium is found at the intersection of an upward-sloping wage-setting (WS) curve and a horizontal price-setting (PS) curve. The total labor force is represented by a vertical line to the right of this equilibrium. If the government enacts a new policy that strengthens workers' bargaining power, what is the resulting effect on the graphical representation of equilibrium unemployment?

Interpreting Unemployment in the Supply-Side Model

Calculating Equilibrium Unemployment

In a standard supply-side model with employment on the horizontal axis and the real wage on the vertical axis, a decrease in the price markup set by firms will lead to a reduction in the horizontal distance between the equilibrium employment level and the total labor force.