Final answer:
An increase in markup typically leads to a B. reduction in the equilibrium real wage and potentially to an increase in unemployment, due to the downward wage stickiness.
Step-by-step explanation:
In the context of a labor market model, an increase in markup often implies that companies are raising their prices relative to their costs, including the cost of labor. It typically signifies a reduction in labor's share of output, which could lead to a decrease in the demand for labor if firms seek to maintain their higher profit margins. According to economic theory, if the demand for labor decreases, then, all other things being equal, the equilibrium real wage will fall, and unless wages are completely sticky downward, this will result in a reduction in the equilibrium real wage (option B). Additionally, if wages cannot adjust downward due to wage stickiness, unemployment (Un) may rise because at the previous equilibrium wage, there will be more job seekers than jobs available.
This can be seen through the interaction between shifts in labor demand and wages that are sticky downward, as depicted in various economic models. Specifically, if there is a rightward shift in labor demand—from Do to D₁—the equilibrium wage rises from Wo to W₁ and the equilibrium quantity of labor hired increases from Qo to Q₁. However, if instead, the demand for labor falls, and wages do not decline due to stickiness, a reduction in the quantity of labor demanded occurs, leading to unemployment.