Long-term labour contracts are an important feature of ________ theories of the labour market.In contrast to a world with continuous bargaining of wages and employment,the existence of such contracts leads to a labour market in which involuntary unemployment is ________.

Question

Quizplus · Accepted Answer

Non-market-clearing theories of the labour market, such as Keynesian economics, suggest that due to various frictions and rigidities (e.g., long-term labor contracts), the labor market does not always clear, leading to the possibility of involuntary unemployment. This contrasts with market-clearing theories, which assume that wages and employment levels adjust to ensure that everyone who wants to work at the prevailing wage can find employment, theoretically eliminating involuntary unemployment.

Long-Term Labour Contracts Are an Important Feature of ________ Theories