In the United Kingdom, there was a leftward shift in demand for housing (just like we showed in ***Figure 4.6 "A Decrease in Demand for Housing"). The response of homebuilders to such a shift is to build fewer homes and, therefore, demand less labor. As a result, there is a leftward shift in the demand curve for construction workers. Based on the supply-and-demand framework, we predict both lower wages and a reduction in employment in the construction sector of the economy, as shown in ***Figure 4.11 "A Decrease in Demand for Construction Workers".
Similar reductions in demand for labor occurred in the United States and many other countries around the world. There was a consequent reduction in employment and an increase in unemployment. The crisis was not restricted just to financial markets, in other words. It had consequences for the “real” economy as well.
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