Final answer:
A reduction in unemployment (U) typically leads to an increase in real wage due to higher bargaining power for workers and less labor supply. However, in the presence of sticky wages, a decrease in unemployment does not necessarily change the wage immediately. In the context of labor demand, an increase would lead to higher wages and more labor hired.
Step-by-step explanation:
Based on WS (Wage-Setting) behavior, a reduction in unemployment (U) is typically associated with an increase in real wage. When unemployment falls, the pool of available workers decreases, which can give workers more bargaining power. This could, in turn, push wages upwards since employers may need to offer higher wages to attract the fewer available workers. Alternatively, if the WS refers to wage stickiness, with labor markets facing downward rigidity in wages, a reduction in unemployment wouldn't necessarily cause wages to change immediately due to this stickiness.
In a scenario where labor demand increases (such as a shift from D0 to D1), the equilibrium wage would increase, resulting in a higher quantity of labor hired (from Q0 to Q1), assuming wages are not sticky downwards. If we are discussing wage-setting (WS) in the context of union behavior, it must also be recognized that while a union may raise wages for its members, it could potentially reduce the total amount of employment in the firm.