Suppose we wish to examine the determinants of the equilibrium real wage and the equilibrium level of employment. In a graph with the real wage on the vertical axis, and the level of employment on the horizontal axis, the wage- setting relation will now be:

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The wage-setting relation represents how wages adjust to changes in employment levels. It is typically modeled as an upward sloping line because as employment increases, the labor market tightens, leading to higher wages as employers compete for workers.

Suppose We Wish to Examine the Determinants of the Equilibrium