Workers and rms bargain over and agree on the nominal

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Unformatted text preview: s, labour demand and supply are not given by their respecCve ideal curves (light blue lines), but by their respecCve effecCve schedules indicated by the dark blue lines. As a result, involuntary unemployment (mismatch unemployment) results and coexists with unfilled vacancies. Case study 1. Mismatch in the UK labour market Reference: “Mismatch in the Labor Market: Evidence from the U.K. and the U.S.” by A. Sahin, G. Topa and G. Violante, New York Federal Reserve. Unemployment rate UK 9 8 7 6 5 4 3 2 1 Q1 ­2011 Q3 ­2010 Q1 ­2010 Q3 ­2009 Q1 ­2009 Q3 ­2008 Q1 ­2008 Q3 ­2007 Q1 ­2007 Q3 ­2006 Q1 ­2006 Q3 ­2005 Q1 ­2005 Q3 ­2004 Q1 ­2004 Q3 ­2003 Q1 ­2003 Q3 ­2002 Q1 ­2002 Q3 ­2001 Q1 ­2001 0 Real wages rigidiEes and the aggregate supply curve 3. Nominal wage sCckiness and temporary displacement from equilibrium In this secCon we answer: Why may actual output deviate from potenCal ouput? Workers and firms bargain over and agree on the nominal wage before they know what the price level will be when their agreement takes effect. The nominal wage is set as: The real wage turns out to be:...
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