The figure shows how wages and the amount of labor hired in the market adjust to this. At the beginning, the market is at equilibrium with w* wage and L* amount of labor hired. The rightward shift in labor demand creates an excess demand for labor in the market (L*2 -L*), causing wages to rise all the way up to the new market-clearing wage, w1. As the wage level increases, excess demand disappears. In brief, it indicates that an increase in labor demand increases the equilibrium wage and employment. The correct answer is E.