Dual Causes of the Widening Bargaining Gap with a Downward-Sloping PS Curve
When the price-setting (PS) curve is downward-sloping due to variable markups, a rise in employment widens the bargaining gap for two distinct reasons. The first is the increased bargaining power of workers in a tighter labor market, captured by the upward-sloping wage-setting (WS) curve. The second is the ability of capacity-constrained firms to increase their markups, which pushes the real wage offered by firms down, as reflected by the downward-sloping PS curve.
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Introduction to Macroeconomics Course
Ch.4 Inflation and unemployment - The Economy 2.0 Macroeconomics @ CORE Econ
The Economy 2.0 Macroeconomics @ CORE Econ
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Figure 4.26: Profit-Push Inflation Due to Capacity Constraints
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Figure 4.26: Profit-Push Inflation Due to Capacity Constraints