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Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364

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BuyFindarrow_forward

Principles of Economics 2e

2nd Edition
Steven A. Greenlaw; David Shapiro
ISBN: 9781947172364
Textbook Problem

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?

To determine

The reason for preferring sticky wages to wage cuts when the consequence of sticky wages is unemployment for some workers.

Explanation

Let us first understand what happens if the wages remain sticky. In general term it means that the wages remain at the same level while revenue or sales decrease. In such a case the company will ultimately have to dip in its emergency resources for working capital. What happens is that normally owing to the pressure of labour union, the government or the fear of bad publicity companies normally cannot reduce the wages for a large workforce with the agility of the downturn...

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