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Consider the information in the file named Hypothetical Labor Market Data. The file shows the aggregate demand for labor in a small country with a civilian population of 100,000 persons. The labor force participation rate in this country is only 30% and it does not depend on the level of real wage. Wages and prices are fully flexible downwards and upwards.
Start from the base case. Suppose that due to changes in social norms, the participation rate of women in the labor force increases. As a result, the overall labor force participation rate increases to 50.00%.
At the same time, due to increases in the amount of capital and advances in technology, the marginal product of labor increases by 40 units (labor demand shifts up by 40 units). These events will cause the equilibrium real wage to change to units.
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