Firms with internal labor markets have more flexibility in deciding the level and time profile of wages because
A)individuals tend to base their employment decisions on their entire career earnings.
B)they have to pay the wage rate that equals the marginal revenue product of labor.
C)compensating wage differentials do not have to be paid in internal job markets.
D)firm-specific human capital is less costly than general human capital.

Question

Quizplus · Accepted Answer

Internal labor markets allow firms to consider an individual's career earnings when setting wages, which provides more flexibility in determining wage levels and time profiles. This is because individuals may be more willing to accept lower wages in the short-term if they believe it will lead to higher earnings over the course of their career.

Firms with Internal Labor Markets Have More Flexibility in Deciding