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Wage determination

Wage determination 

As you can see above, wages are determined in an industry as prices are - by taking where the supply and demand curve meet, the point of equilibrium. The area below We and to the left of the supply curve is the area of labour surplus. The area above We and to the left of the demand curve is the employer surplus. 

 Labour surplus is the workers that would have been willing to work at a lower wage than We so are benefitting. It is the difference between the wage workers would have been willing to accept and what they are actually accepting. 
NB: this is NOT the same as surplus labour. 

Employer surplus is the difference between what firms are willing to pay workers and what they actually are paying. It is the firms that would have been willing to pay workers a higher wage than We.

 The firms that are to the right of Qe are those who are not working because they have some substitute worth more than We - they are the voluntary unemployed. In a free market, everyone willing to work is employed, so hypothetically there is not involuntary unemployment. 
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