Final answer:
Market wage can remain above the equilibrium level that clears the labor market due to government intervention, wage stickiness due to concerns over employee morale, and employment contracts. Unemployment persists while wages are sticky even if labor supply increases without a commensurate rise in labor demand.
Step-by-step explanation:
The question is asking what factors keep the market wage above the equilibrium level that would naturally clear the labor market. In the supply-and-demand model of labor markets, the equilibrium wage (We) is the wage rate at which the quantity of labor supplied equals the quantity demanded. Market wages can remain above this equilibrium level due to several factors.
One significant factor is government intervention, such as minimum wage laws, which set a legal floor for wages that can prevent them from falling to equilibrium levels. Another reason why wages might be 'sticky' downwards is due to concerns about hurting worker morale or because of long-term employment contracts.
Additionally, unemployment itself can persist because even though there is a surplus of labor (quantity of workers seeking jobs, Qs, is greater than the quantity of jobs available, Qd), wages do not fall to clear the surplus due to these downward rigidities. Over time, if the demand for labor increases, the unemployment rate may decrease and wages could rise again.