Discuss some of the arguments that help explain why wages and prices rarely fall in a modern economy
Institutional factors such as minimum wage laws, union contracts, and a variety of government regulations that place legal floors under particular wages and prices have been pointed out as a reason.
Other observers suggest that workers have a profound psychological resistance to accepting a wage reduction. This theory has roots in psychological research that finds people to be far more aggrieved when they suffer an absolute loss than when they receive only a small gain.
A third explanation is based on the fact that business cycles have been less severe in the postwar period than they were in the prewar period. As workers and firms came to realize that recessions would not turn into depressions, the argument goes, they decided to wait out the bad times rather than accept wage or price reductions that they would later regret.
Yet another theory is based on the old adage, "You get what you pay for." The idea is that workers differ in productivity but that the productivities of individual employees are difficult to identify. Firms therefore worry that they will lose their best employees if they reduce wages?because these workers have the best opportunities elsewhere in the economy. Rather than take this chance, the argument goes, firms prefer to maintain high wages even in recessions.
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The tendency of many different economic variables to have regular and predictable patterns over the business cycle is called
A) persistence. B) comovement. C) periodicity. D) recurrence.
Average labor productivity tends to be
A) procyclical and less variable than real GDP. B) procyclical and more variable than real GDP. C) countercyclical and less variable than real GDP. D) countercyclical and more variable than real GDP.
A game with a first-mover advantage is one in which:
A. the first player to move determines the payoffs for the rest of the game. B. the player who chooses first gets a higher payoff than those who follow. C. the player who chooses first gets to decide if a repeated game will start with cooperation from the beginning. D. None of these statements is true.
A welfare payment that is reduced when the recipient earns more income is a(n):
A. means-tested benefit. B. inducement for the poor to find employment. C. unconditional benefit. D. fair benefit.