Because of labour hoarding, a reduction in output may signal:
A) a decrease in employment.
B) no change in productivity.
C) an increase in productivity.
D) a decrease in productivity.
E) an increase in employment.

Question

Quizplus · Accepted Answer

Labour hoarding occurs when firms keep more workers on their payroll than they require to produce their current level of output. This may be due to various reasons such as a lack of willingness to lay off workers or an expectation of future increase in demand. In such a scenario, a reduction in output does not necessarily lead to a decrease in employment as firms may choose to retain their workers. However, the reduction in output means that each worker is producing less, resulting in a lower productivity level. Therefore, a reduction in output signals a decrease in productivity (Choice D).

Because of Labour Hoarding, a Reduction in Output May Signal