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11 Nov 2021
Introduction
When the demand for labor is equal to the supply of labor, then equilibrium is reached in the labor market. The economy determines wages in the labor market by the intersection of the labor demand curve and labor supply curve.
In the short run, wages are sticky in the downward direction because of many reasons such as implicit contract, efficiency wage theory, adverse selection of wage cuts argument, insider-outsider model, and relative wage coordination argument.
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