A look at macroeconomic data across countries reveals that when economies experience recessions, unemployment rates rise, but wages fall very little, if at all.Which of the following is most likely to support the above observation?
A)Wages are determined by the interaction of the forces of labor demand and supply.
B)The demand for labor is derived demand and hence does not fall during recessions.
C)The labor market usually exhibits perfectly competition.
D)The labor supply curve becomes perfectly inelastic during recessions.
E)Long term labor contracts make the wage rates sticky downwards.

Question

Quizplus · Accepted Answer

Long-term labor contracts make wage rates sticky downwards, meaning that wages do not adjust downward easily during recessions. This results in rising unemployment rates, but little to no change in wages. Option A is not specific to recessions and is a general statement about wage determination. Option B is not entirely correct, as the demand for labor can fall during recessions. Option C is incorrect, as labor markets typically do not exhibit perfectly competitive characteristics. Option D is also not accurate, as the labor supply curve does not become perfectly inelastic during recessions.

A Look at Macroeconomic Data Across Countries Reveals That When