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In labour economics, Shapiro–Stiglitz theory of efficiency wages (or Shapiro–Stiglitz efficiency wage model) [1] is an economic theory of wages and unemployment in labour market equilibrium. It provides a technical description of why wages are unlikely to fall and how involuntary unemployment appears.
However, the labour market differs from other markets (like the markets for goods or the financial market) in several ways. In particular, the labour market may act as a non-clearing market. While according to neoclassical theory most markets quickly attain a point of equilibrium without excess supply or demand, this may not be true of the ...
The money market equilibrium diagram. The LM curve shows the combinations of interest rates and levels of real income for which the money market is in equilibrium. It shows where money demand equals money supply. For the LM curve, the independent variable is income and the dependent variable is the interest rate.
In the diagram, this raises the equilibrium price from P 1 to the higher P 2. This raises the equilibrium quantity from Q 1 to the higher Q 2. (A movement along the curve is described as a "change in the quantity demanded" to distinguish it from a "change in demand", that is, a shift of the curve.)
Figure 5: Equilibrium in both production and consumption in the Robinson Crusoe economy. At equilibrium, the demand for coconuts will equal the supply of coconuts and the demand for labour will equal the supply of labour. [5] Graphically this occurs when the diagrams under consumer and producer are superimposed. [7] Notice that, MRS Leisure ...
A textbook treatment of the matching approach to labor markets is Christopher A. Pissarides' book Equilibrium Unemployment Theory. [1] Mortensen and Pissarides, together with Peter A. Diamond, were awarded the 2010 Nobel Prize in Economics for 'fundamental contributions to search and matching theory'. [2]
The labour supply curve shows how changes in real wage rates might affect the number of hours worked by employees.. In economics, a backward-bending supply curve of labour, or backward-bending labour supply curve, is a graphical device showing a situation in which as real (inflation-corrected) wages increase beyond a certain level, people will substitute time previously devoted for paid work ...
In this there is a competitive labor market with both labor supply and demand depend on the real wage and the natural rate is simply the competitive equilibrium where demand equals supply. Implicit in his vision is the notion that the natural rate is Unique: there is only one level of output and employment that is consistent with equilibrium.