Multiyear Labor Contracts Slow the Rate of Adjustment of Wages

question 59

Multiple Choice

Multiyear labor contracts slow the rate of adjustment of wages because

• A) people get used to the size of their paychecks and are reluctant to change them up or down.
• B) they are negotiated in real, not nominal, terms.
• C) firms set their prices in terms of wages and are not able to change them when labor costs vary frequently.
• D) such contracts are not all negotiated, and thus up for renewal on the same cycle, causing the economic impact of older contracts to linger.
• E) new labor contracts normally specify wage rates equal to the current national average wage rate.

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