Long-term contracts are desirable for both firms and workers for each of the following reasons EXCEPT one. Which of the following does not explain the desirability of long-term contracts?
A) wage negotiations are costly and time consuming on both sides
B) contracts insulate workers from changing economic conditions such as decreases in aggregate demand
C) the incidence of strikes decreases because the contracts are binding for three years
D) contracts reduce uncertainty

Question

Quizplus · Accepted Answer

Long-term contracts may provide job security and reduce uncertainty for workers, but they do not necessarily insulate workers from changing economic conditions such as decreases in aggregate demand. In fact, in some cases, long-term contracts may make it difficult for firms to adjust their workforce to changing economic conditions, leading to layoffs or even the closure of the firm.

Long-Term Contracts Are Desirable for Both Firms and Workers for Each