... the labour force, and the LS curve, to the left of it, shows the labour supply curve. The LD curve shows firms' demand for labour at any given real wage rate, and is downward sloping to reflect the fact that the cheaper the cost of labour, the more firms are willing to employ extra labour. To keep the model simple, the effects of diminishing returns are ignored, although this would result in the curve being convex rather than linear. At the real wage rate (W/P)*, employment will be at N*. N shows the level of employment if all those in the labour force were to take jobs. Thus, the level of voluntary unemployment will be (N-N*). These people are considered to be out of work due to choice: they are unwilling to work at for (W/P)*. Included in this definition of voluntary unemployment are those in the transition stage from ...

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