Answer to Question #221340 in Macroeconomics for Ma-A

Question

In the labour market explain how the rate of unemployment is related to the bargaining power and nominal wages

Answer 1

As the unemployment rate increases, it is more difficult for individuals to find employment at other firms. Therefore bargaining power will fall, as bargaining power falls, the nominal wage will fall.

A decrease in unemployment improves workers' bargaining power as the bargaining power improves the nominal wages improves.