Final answer:
The short run in macroeconomics is a period up to five years where wages do not fully adjust to economic conditions, whereas in the long run, adjustments in wages and prices occur as the economy achieves potential GDP. Wages tend to increase during the long run due to labor shortages and high demand for labor.
Step-by-step explanation:
In macroeconomics, the short run is typically defined as a period where nominal wages and other input prices do not change in response to changes in economic conditions. This period can be thought of as lasting between two to five years. During the short run, the economy adjusts to shifts in aggregate demand, but wage and price flexibility is limited. Conversely, the long run in macroeconomics refers to the time period where economic agents have fully adjusted to market conditions, including full wage and price flexibility. In this context, wages generally increase as the economy moves towards potential GDP, following a period of high demand for labor that creates a labor shortage. However, empirical evidence on the actual speed of macroeconomic adjustment of prices and wages is mixed and may vary by country and time period.
In the long-run neoclassical perspective, after output rises above potential GDP, unemployment falls, signaling an economy above full employment. This leads to a labor shortage where employers compete for workers, driving up wages. Eventually, most employers will raise wages, which usually takes some time due to the infrequency of salary reviews. This increase in wages contributes to a leftward shift in the short-run Keynesian aggregate supply curve, resulting in a new economic equilibrium with an inflationary increase in the price level, yet the same level of real GDP as the original equilibrium.