Multiyear labor contracts slow the rate of adjustment of wages because
A) people get used to the size of their paychecks and are reluctant to change them up or down.
B) they are negotiated in real, not nominal, terms.
C) firms set their prices in terms of wages and are not able to change them when labor costs vary frequently.
D) such contracts are not all negotiated, and thus up for renewal on the same cycle, causing the economic impact of older contracts to linger.
E) new labor contracts normally specify wage rates equal to the current national average wage rate.

Question

Quizplus · Accepted Answer

Multiyear labor contracts are staggered, meaning they are not all negotiated at the same time. This causes the effects of older contracts to persist, slowing the overall adjustment of wages in response to economic changes.

Multiyear Labor Contracts Slow the Rate of Adjustment of Wages