Causes of Real Wage Unemployment
Normally trade unions are blamed for real wage unemployment, because they demand higher wages be paid for their workers . Other economists blame minimum wage laws that are set above the equilibrium, leading a rising in the labor force and leaving many people unemployed. Contracting workers at a fixed wage rate may also cause this type of unemployment because if a downturn occurs the employer cannot cut wages immediately and forced to keep the employee until end of contract over other workers. Bottom line, whether it is the trade unions demand of higher wages, contracting employees, or a minimum wage law that is over equilibrium, this type of unemployment will always happen when wages being paid are too high and a higher work force is competing for these better paying jobs. If cost of living or prices of goods and services also rises with the wages then wages will stay at equilibrium level and should not be a problem.