Following a significant recessionary period in which there were periodic wage freezes, workers negotiate higher wages. However, the higher wages lead to a decrease in the number of new workers getting hired, so unemployment persists in the region. The scenario described here is an example of:
A)efficiency wages.
B)frictional unemployment.
C)hysteresis.
D)a government mandated minimum wage.

Question

Quizplus · Accepted Answer

The scenario describes hysteresis, which is a situation where the effects of past events persist and lead to long-term changes in the economy. In this case, the recessionary period resulted in periodic wage freezes, and when workers negotiate higher wages, it leads to unemployment because employers are unwilling or unable to hire new workers at those higher wages. Hysteresis can prolong the effects of a recession and make it difficult for an economy to fully recover.

Following a Significant Recessionary Period in Which There Were Periodic