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MACROECONOMICS
others in the labour market. In that case, workers bargain with their employers
taking into account the nominal wages they receive compared to a reference
group of workers with whom they make comparisons in terms of similarities
in working conditions and job description. Employers, on the other hand, con-
tinue to make decisions about labour demand in terms of the real cost to them
of any nominal wage they pay. An individual firm can observe its own price as
well as the wage paid to its workers so that it can make decisions with respect to
the real wage. In this case, the demand and supply curves for labour are given, ...
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