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Consider a graphical model of the labor market where the total number of people available for work is represented by a vertical line. In this specific representation, a significant increase in the real wage offered by firms will cause more people to seek employment.
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In a labor market model where a vertical line represents a fixed total labor force, what is the graphical effect of a permanent decrease in the number of people willing to work at any real wage (for example, due to a wave of early retirements)?
Evaluating the Fixed Labor Supply Assumption
Consider a graphical model of the labor market where the total number of people available for work is represented by a vertical line. In this specific representation, a significant increase in the real wage offered by firms will cause more people to seek employment.
In a labor market model where the quantity of labor supplied does not change regardless of the real wage, the labor supply curve is a vertical line. This indicates that the supply of labor is perfectly ____ with respect to the real wage.