What is the likely relationship between wage increases and short-run aggregate supply?

Wage increases typically lead to shifts left in aggregate supply in the short run because they raise production costs for businesses. When wages increase, firms face higher expenses in compensating their workers. Since wages represent a significant component of total production costs, an increase can lead to a decrease in the quantity of goods and services that firms are willing to supply at any given price level. This results in a leftward shift of the short-run aggregate supply curve.

In this context, when production becomes more expensive due to higher wages, firms may reduce production levels to maintain profitability, leading to a lower overall supply in the economy. This relationship illustrates the principle that rising input costs, like wages, can adversely affect the short-run supply capabilities of an economy.