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One consequence of wage rigidity is: lower rates of unemployment less labor market volatility labor market...

One consequence of wage rigidity is:

  1. lower rates of unemployment

  2. less labor market volatility

  3. labor market stability

  4. a lower unemployment rate

  5. None of these answers are correct.

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Answer #1

The answer is E) None of these answers is correct

Wage rigidity is known to increase unemployment rate since individuals take long to find high paying jobs. Unemployment increases due to the rigidity of money wages. Also, wage rigidity leads to labor market instability. This is attributed to the fact that in the wage rigidity sector the rigidities are linked to unfavorable outcomes in the labor market such as high rates of labor turnover as firms try to replace workers rather than cutting wages and high unemployment.

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