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Chapter 21: Q. 37 (page 525)

Do you think it is rational for workers to prefer sticky wages to wage cuts when the consequence of sticky wages is unemployment for some workers? Why or why not? How do the reasons for sticky wages explained in this section apply to your argument?

Short Answer

Expert verified

Workers who are able to save their job are well off with sticky wages but those who lose their job will prefer wage cuts.

Step by step solution

01

Step 1. Unemployment Rate.

The unemployment rate is the percentage of adults who are able to work and are willing to work, and actively looking for work but are not able to find a job.

02

Step 2. Sticky wages or wage cuts.

Sticky wages mean wage does not fall due to a fall in the demand for labor which creates unemployment. Workers who are able to save their job are well off with sticky wages but those who lose their job will prefer wage cuts.

They generally prefer long-term contracts with fixed wages as they do not have to bear the unemployment consequences.

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Most popular questions from this chapter

A country with a population of eight million adults has five million employed, 500,000 unemployed, and the rest of the adult population is out of the labor force. What’s the unemployment rate? What share of the population is in the labor force? Sketch a pie chart that divides the adult population into these three groups.

As the baby boom generation retires, the ratio of retirees to workers will increase noticeably. How will this affect the Social Security program? How will this affect the standard of living of the average American?

While unemployment is highly negatively correlated with the level of economic activity, in the real world it responds with a lag. In other words, firms do not immediately lay off workers in response to a sales decline. They wait a while before responding. Similarly, firms do not immediately hire workers when sales pick up. What do you think accounts for the lag in response time?

Many college students graduate from college before they have found a job. When graduates begin to look for a job, they are counted as what category of unemployed?

What is the difference between being unemployed

and being out of the labor force?
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