Welcome to European Tribune. It's gone a bit quiet around here these days, but it's still going.
But your labor demand curve has the wrong shape for low-wage labor in high-income Anglo Disease nations.

We are not in a full employment economy, and beyond the level of effective demand, there is no benefit to employers in hiring more workers, no matter how low a wage they are willing to accept. So the D:L curve should go downward sloping to the quantity of labor for which there is effective demand, and then drop vertically to the L axis.

Drop the wage, and its not inside the diagram that the reduction in the size of the pie occurs, but outside the diagram in the income feedbacks ... the result of the wage suppression is a reduction in effective demand and a leftward shift in D:L.

If unwilling to cure the Anglo disease, the temporary response is therefore to find unsustainable short term arrangements to prop up effective demand, replacing the effective demand lost due to wage suppression.

I've been accused of being a Marxist, yet while Harpo's my favourite, it's Groucho I'm always quoting. Odd, that.

by BruceMcF (agila61 at netscape dot net) on Sat Jan 10th, 2009 at 06:59:16 PM EST
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