Final answer:
If the wage is set above the competitive equilibrium wage, the quantity of labor supplied exceeds the quantity of labor demanded, causing unemployment. This is due to the labor market experiencing excess supply, and the resulting unemployment persists until market forces eventually adjust unless the wage is adjusted to match the equilibrium.
Step-by-step explanation:
If the wage is held above the competitive equilibrium wage, the economic theory suggests that the quantity of labor supplied (Qs) will exceed the quantity of labor demanded (Qd), resulting in unemployment. This imbalance occurs because at a higher wage, more workers are willing to work, but employers are not willing to hire as many workers at that increased cost. The labor market experiences excess supply of labor.
According to figures and examples illustrated, if the demand for labor falls and wages do not decline due to downward stickiness, fewer workers are hired at the original higher wage (Wo), leading to unemployment. If there is an influx in the labor supply, such as from women entering the labor market, without a corresponding increase in labor demand, the increased supply will also result in a rise in unemployment because the number of job openings (Qe) does not change.
Over time, if labor demand grows, unemployment will decrease, and wages may begin to rise. This adjustment in the labor market, however, is often slow, and short-term unemployment persists as long as wages are fixed above the equilibrium level.