Full-Employment and Unemployment Equilibria
N8 = N, ( I ) where N8 is the amount of labour supplied or the existing labour force and N a constant. Equation (I) gives us an autonomous supply of labour function independent of income change.
The Demand for Labour The aggregate demand for labour in the short run may be regarded as an increasing function of real national income or output:
Nd = nY, (dNd/dY > 0) (2) where Nd is the amount of labour demanded, Y real national income or output, and n the labour-output ratio which is assumed to be technologically fixed.1 Equation (2) indicates that the amount of labour demanded depends directly on the level of national output, when the labour-output ratio remains constant.