An earthquake destroys some of the capital stock.
The real rental price equals the marginal product of capital. Because
of diminishing marginal product of capital, a reduction in the capital stock causes the marginal product of capital to rise.
Hence, the real rental price rises. Now with less capital stock to
work with, an additional unit of labor produces less additional
output. This decrease in the marginal product of labor leads to a
decrease in the real wage.