Answer to Question #313173 in Macroeconomics for captain nyagah

Question

why would firms not reduce the wage to accommodate unemployed labor, if the real wage is a recession?

Answer 1

There arises a reluctance among the employers in agreeing to reduced wages even in the face of reduced demand and increased labor supply. This means that if the firms decide to reduce wages to accommodate unemployed labor, it results to reduced employees productivity and may eventually result to the most productive workers leaving voluntarily for higher paying jobs elsewhere.