What is the term for the wage rate that results in neither a surplus nor a shortage of labor in the market?

• A. Equilibrium wage
• B. Fringe benefits
• C. Wage gap
• D. Collective bargaining

Answer: (A)

The key idea is the equilibrium wage, the market-clearing wage. This is the wage rate at which the quantity of labor that workers are willing to supply exactly equals the quantity that firms want to hire. At this point there is no excess supply (unemployment beyond voluntary choices) and no excess demand (labor shortage).

If the wage rose above this level, more people would want to work than firms want to hire, creating a surplus of labor. If the wage fell below this level, firms would want to hire more workers than are available, creating a shortage. The concept is the same in any market: the price that clears supply and demand.

Fringe benefits are additional non-wage compensation, wage gap refers to differences in wages, and collective bargaining is the process of negotiating wages and other terms of employment.