The efficiency wage model of unemployment is an adaptation of the supply and dem

Question

The efficiency wage model of unemployment is an adaptation of the supply and demand model of a market. In graphical form, it is illustrated like this: Why docs unemployment exist, according to this model? Why doesn't the market adjust to an equilibrium in which the quantity of labor supplied is equal to the quantity of labor demanded? Answer the following three questions to describe, in formal mathematical language, the relationship between unemployment and wages. Which is the independent variable? Which is the dependent variable? Is it a direct or inverse relationship?

Explanation / Answer

According to this model, unemployment exist because there is an incentive for employer to pay their employees more than maket clearing level of wage in order to increase their productivity or efficiency, or reduce cost associated with turnover, in the industries where cost of replacing labour are high. This increased labour productivity or decreased cost pay for higher wages.

2. there is inverse relatiinship between unemployment and wages

Related Questions

Navigate

• Browse (All)
• Browse T
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.