In an economic model where the real wage that firms can sustainably offer is directly linked to the average output per worker, consider an economy that experiences a prolonged period where this average output per worker remains flat. Assuming other factors that influence firms' pricing decisions remain constant, what is the most likely consequence for the real wage?

Analyzing Real Wage and Employment Dynamics

Productivity Constraints on Wage Policy

In an economic framework where firms set prices as a markup over their labor costs, a sustained increase in workers' nominal wage demands will automatically lead to a higher equilibrium real wage, even if the average output per worker remains unchanged.

Impact of Nominal Wage Increases Amidst Stagnant Productivity