As an expert in the field of economics, I'm well-versed in the various types of unemployment and their implications on labor markets. Let's delve into the concept of real wage unemployment.

Real wage unemployment is a phenomenon that emerges when the actual wage rate in the labor market exceeds the equilibrium wage rate, which is the rate at which the supply of labor equals the demand for labor. This discrepancy between the actual and equilibrium wage rates can be attributed to several factors, including labor market imperfections, such as minimum wage laws, collective bargaining agreements, or the presence of trade unions.

In a perfectly competitive labor market, wages would adjust to clear the market, meaning that there would be no unemployment as long as workers are willing to accept the market-clearing wage. However, in the real world, labor markets are often not perfectly competitive, and wages may not adjust as they would in theory.

Labor Market Imperfections are a key driver of real wage unemployment. These imperfections can prevent wages from falling to the equilibrium level, thus creating a surplus of labor. For example, if a minimum wage is set above the equilibrium wage, employers may not be able to afford to hire as many workers as they would at a lower wage, leading to unemployment.

Another factor contributing to real wage unemployment is collective bargaining. When unions negotiate for higher wages on behalf of their members, they may push wages above the market-clearing level, resulting in unemployment for those who are not part of the union or for those whose skills are not in high demand.

Furthermore, sticky wages can also lead to real wage unemployment. Sticky wages refer to the resistance of wages to fall, even when there is an excess supply of labor. This can be due to social norms, psychological factors, or legal restrictions that make it difficult for employers to reduce wages.

The disequilibrium in the labor market depicted in the diagram you mentioned illustrates the situation where the labor supply curve (S) intersects with the labor demand curve (D) at a wage rate (W1) that is higher than the equilibrium wage rate (We). At this higher wage rate, the quantity of labor supplied (Qs) exceeds the quantity of labor demanded (Qd), leading to unemployment.

This type of unemployment can persist if the factors causing the wage to remain above the equilibrium level are not addressed. It's important to note that real wage unemployment is not only about the level of wages but also about the structure of the labor market and the flexibility with which wages can adjust to changes in supply and demand.

Addressing real wage unemployment requires a multifaceted approach. It may involve policies that improve the flexibility of the labor market, such as reducing minimum wage rates where appropriate, encouraging the development of skills that are in demand, and fostering an environment where collective bargaining can lead to more efficient wage determination.

In conclusion, real wage unemployment is a complex issue that requires a nuanced understanding of labor market dynamics. It is essential for policymakers and economists to consider the various factors that contribute to this type of unemployment and to implement policies that promote a more efficient and flexible labor market.

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Real wage unemployment. Unemployment that occurs when labour market imperfections preserve a higher real wage rate than the equilibrium real wage rate. Below is a diagram to show the labour market in disequilibrium and how this type of unemployment persists.read more >>