An economy experiences a large influx of new workers, leading to a significant increase in the total number of people employed. Despite this change, the average output produced per worker and the typical profit share that firms retain from the price of each good remain constant. Based on the price-setting behavior of firms, what is the expected impact on the aggregate real wage (the purchasing power of the average wage)?

Evaluating Economic Policies

Employment Levels and the Price-Setting Real Wage

In an economy where firms set prices as a markup over their costs, a government policy that successfully doubles the number of people employed will, by itself, lead to a decrease in the aggregate price-setting real wage.

Evaluating a Policy Argument on Real Wages