Learning Path
Question & Answer1
Understand Question2
Review Options3
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Explore TopicChoose the Best Answer
A
High wage elasticity leads to increased employment during recessions, as firms can easily adjust wages.
B
Low wage elasticity means firms are less likely to reduce employment even in adverse economic conditions.
C
Government policies that increase minimum wage have no effect on employment in a recession with low wage elasticity.
D
In a recession, both high and low wage elasticity will equally lead to significant decreases in employment.
Understanding the Answer
Let's break down why this is correct
Answer
Wage elasticity of labor demand refers to how sensitive the demand for workers is to changes in wages. In a recession, companies often face lower sales and may not need as many employees, making labor demand more elastic. This means that if wages rise, even slightly, employers might cut jobs because they can't afford the higher costs. For example, if a restaurant has to pay its cooks more but has fewer customers, it might reduce staff to keep costs down. Government policies, like unemployment benefits or wage subsidies, can help stabilize employment by easing the financial burden on both workers and employers during tough economic times.
Detailed Explanation
When wage elasticity is low, companies are less likely to cut jobs even when the economy is struggling. Other options are incorrect because Some might think that high wage elasticity means companies can easily hire more workers during tough times; It's a common belief that raising the minimum wage won't affect jobs in a recession.
Key Concepts
wage elasticity
economic conditions
government policy
Topic
Labor Demand Dynamics
Difficulty
hard level question
Cognitive Level
understand
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