Workers may display irrationality in labor adjustments to shocks if:
A) union actions caused their pre-layoff wages to exceed market clearing wages.
B) they practice intertemporal substitution.
C) they voluntarily quit their jobs.
D) they find new jobs that are higher paying.

Question

Quizplus · Accepted Answer

If union actions caused workers' pre-layoff wages to exceed market clearing wages, then they may resist wage reductions or job loss more strongly than they would have with lower wages. This can lead to irrational labor adjustments in response to negative shocks.

Workers May Display Irrationality in Labor Adjustments to Shocks If