The single, most important conclusion from the Institutionalist macro analysis is that the economy does not automatically create enough jobs for everyone who is willing to work. This diagram represents graphically the behavior of potential workers and of firms. This can be measured in hours, number of workers, or however. The curve on the graph, labeled N d , is the demand for labor by firms. Its negative slope can be explained as follows.
Firms are rational, greedy, and they like to trade.
To avoid either of these unpleasant possibilities, firms try to set output at the level that will maximize profits. The model of the labor market is set in the short run. Thus, the only way for firms to expand output in the short run is to add new workers. There is not time enough to expand output by expanding capital. As wages rise, the demand for employees falls, so the slope of the line is negative.