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  • Firm's Markup and its Relation to Market Competition

  • Formula for the Price-Setting Real Wage as a Share of Labor Productivity

Impact of Higher Productivity on the Price-Setting Curve

An increase in labor productivity shifts the entire price-setting (PS) curve upward. This shift occurs because the firm's profit-maximizing markup, which is determined by the level of market competition, is not affected by changes in productivity. As a result, the respective shares of output going to profits and wages remain constant. When output per worker increases, this fixed distribution ensures that the real wage also rises, leading to a higher PS curve and a new equilibrium with an improved real wage for workers.

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References

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Economics

Economy

Introduction to Macroeconomics Course

Ch.1 The supply side of the macroeconomy: Unemployment and real wages - The Economy 2.0 Macroeconomics @ CORE Econ

The Economy 2.0 Macroeconomics @ CORE Econ

CORE Econ

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Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ

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