Wage rigidity:
A) forces labor demand to equal labor supply.
B) is caused by sectoral shifts.
C) prevents labor demand and labor supply from reaching the equilibrium level.
D) increases the rate of job finding.

Question

Quizplus · Accepted Answer

Wage rigidity prevents labor demand and labor supply from reaching their equilibrium levels by creating a surplus or shortage of labor. It can be caused by factors such as minimum wage laws, employment contracts, and collective bargaining agreements. As a result, it can lead to unemployment or underemployment, as well as lower productivity and economic growth.

Wage Rigidity