5.8 
have fully maintained their dominant position in the former, they have 
gradually but irretrievably and pretty completely lost it in the latter. 
As a result, while the picture I painted of product market relations and 
conditions is part of present-day reality^ and as such familiar to all of 
us, the picture I am about to paint of factor markets is not. The reversal 
of the balance of market power in factor markets has eliminated the good 
features along with the bad features of producers' domination; and those 
good features are important and interesting enough to be worth recalling, 
the more so, because restoring them in some form may be a way of dealing 
with some of our present macroeconomic problems. 
Employment Creation by Employers. 
When an employer is free to set wages at the profit-maximizing level, 
he aims at equating labor's MC and MVP; and since the firm's long-run 
labor supply curve is rising, that calls for setting the wage below the 
MC ana MVP of labor by subtracting from the MVP a markdown whose size . 
is inversely related to the price elasticity of supply of labor: 
w = MVPd - . 
e+1 
The v/age so set is the profit-maximizing wage; but all the non-wage aspects 
of the price maker's labor market policy remain yet to be determined and are 
governed by the gap between the KVP of labor and the wage. The same is true 
also of the price maker's short-run responses to external shocks, owing to 
the fact that the wage once set is kept stable by the cost of change and 
related considerations and therefore is regarded as a datum by the price 
maker. Moreover, since the MVP of his workers exceeds their wage, all