Question

Give two reasons explaining why wage rates may not fall.

Short answer

The two reasons explaining why wage rates may not fall can be: 1) Minimum wage legislation, which sets a legal floor for wages that employers must respect. 2) Labor unions and collective bargaining, where unions negotiate wage rates on behalf of workers, preventing the wages from falling.

Step-by-step solution

Reason 1 - Minimum Wage Legislation

The first reason is the existence of laws stipulating a minimum wage. This is a legal floor below which wage rates cannot go. Even in situations where demand for labor falls and would naturally cause wages to decrease, minimum wage laws prevent this from happening.

Reason 2 - Labor Unions and Collective Bargaining

The second reason can be labor unions and their ability to protect the wages of their member workers. Unions have the power to negotiate wage rates and they can prevent wages from falling through collective bargaining agreements. In this case, the strength of the unions and their bargaining power can sustain wage levels even under economic pressure.