Equilibrium Wage - Explained
What is the Equilibrium Wage?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is the Equilibrium Wage?
At equilibrium, the quantity supplied and the quantity demanded are equal. Thus, every employer who wants to hire at this equilibrium wage can find a willing worker, and every nurse who wants to work at this equilibrium salary can find a job.
The supply curve (S) and demand curve (D) intersect at the equilibrium point (E).
Many markets contain closely related products that differ in quality. Even in such cases, discussing the average price can still be useful because it reflects what is happening in most of the submarkets.
When the price of labor is not at the equilibrium, economic incentives tend to move salaries toward the equilibrium.
At that above- equilibrium salary, excess supply or a surplus results. In a situation of excess supply in the labor market, with many applicants for every job opening, employers will have an incentive to offer lower wages than they otherwise would have.
In contrast, if the salary is below the equilibrium then a situation of excess demand or a shortage arises.
In response to the shortage, some employers will offer higher pay to attract employees. Other employers will have to match the higher pay to keep their own employees. The higher salaries will encourage more employees to train or work. Again, price and quantity in the labor market will move toward equilibrium.
Related Topics
- Labor Economics
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Labor Market Equilibrium
- Labor Market
- Labor Market Equilibrium
- Labor Market Efficiency
- Price, Supply, and Demand in the Labor Market
- Equilibrium Wage
- Shifts in the Demand for Labor
- What Causes Shifts in the Supply Labor?
- How Technology affects Demand for Labor?
- Minimum Wage as a Price Floor in the Labor Market
- What is the First Rule of Labor Markets?
- Labor Demand in Perfectly Competitive Markets
- Imperfect Competition in Labor Markets
- Monopsony
- Oligopsony
- Labor Market Power of Employers
- What is the marginal Cost of Labor?
- Labor Market Power of Employees
- What is a Bilateral Monopoly in a Labor Market?
- Wage Elasticity of Labor Supply
- Equilibrium in Supply and Demand in Labor Markets
- Shifts in Supply and Demand in Labor Markets