The No-Shirking Wage and Involuntary Unemployment
The wage-setting model demonstrates that involuntary unemployment is a necessary outcome of the labor market equilibrium. This occurs because firms must set a 'no-shirking wage'—a wage high enough to motivate employees by creating a significant cost to job loss. As a result, the wage is established at a level where the supply of labor exceeds the demand, leading to a persistent state of involuntary unemployment.
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The No-Shirking Wage and Involuntary Unemployment
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