Summary•In this chapter we bring supply and demandtogether in order to explore the determinants ofemployment and wages in a single labour market.•Irrespective of the competitive structure of thelabour market, imperfect competition in the prod-uct market will affect the shape of the firm’s labourdemand function. However, there are no theoreti-cal links between imperfect competition in theproduct market and imperfect competition in thelabour market.•If the labour market is perfectly competitive, thestandard supply and demand model will apply. Inthis case, by assuming a particular functional formfor the supply and demand functions,we can solveexplicitly for the equilibrium employment andwage levels. For purposes of policy analysis, it isoften useful to solve for the reduced form,express-ing the endogenous variables (wages and employ-ment) as functions of the exogenous variables(shifters of supply and demand) and the parame-ters of the supply and demand functions. Solving
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