Suppose a country's government enacts new legislation that substantially increases the value and duration of unemployment benefits. If the overall level of employment in the economy remains constant immediately following this change, what is the direct outcome in the labor market model?

Explaining the Bargaining Gap

Labor Market Disequilibrium Scenario

If the wage-setting curve shifts upward while employment remains unchanged, a negative bargaining gap is created because the real wage firms are willing to offer is now higher than the wage workers demand.