The ________ in employment during a recession is smaller if wages are ________.
A) decline; rigid
B) increase; rigid
C) decline; flexible
D) increase; flexible

Question

Quizplus · Accepted Answer

During a recession, firms may need to reduce costs, including labor costs. If wages are rigid, firms may have to lay off more workers in order to reduce costs, leading to a larger decline in employment. However, if wages are flexible, firms can reduce labor costs by lowering wages instead of laying off workers, which can lead to a smaller decline in employment. Therefore, smaller declines in employment are associated with flexible wages, making option C the best choice.

The ________ in Employment During a Recession Is Smaller If