When the unemployment rate is low, employers have to be concerned with ‘quit threat,’ in which...

When the unemployment rate is low, employers have to be concerned with ‘quit threat,’ in which their employees leave and find other jobs if they are not fairly compensated. What impact does this have on wages? Does it impact inflation, and is there an ‘ideal’ inflation rate that results?

Expert Solution

When the unemployment rate is low, employers have to be concerned with ‘quit threat,’ in which their employees leave and find other jobs if they are not fairly compensated. What impact does this have on wages? Does it impact inflation, and is there an ‘ideal’ inflation rate that results?

Answer

Yes , this true that when the unemployement rate is low , the employers have to be very conmcerned for the resigning threat by the employees side of leaving the Jobs if they are not fairly compensated.If we have low unemployement rate it means that the demand of the employee is more and when the demand is high , it wages increases according to the principles of economic we have learned .Also the supply of employee is less because there is less unemployement rate .Now in this condition this will impact the inflation rate of wages by hiking it to high level of wages .OR we can say that the new equilibrium wge will be greater than the old equilibrium price . This will have a positive impact on the employee but on the other side it will be difficult for the employer to run their busnies if the labor or the employee will give the quit threat .In this situation the ideal inflation would be to be competitive with the other fiorm and giving the wages which is set by the STANDARD FIRM in that country .or we can say we should comparably given wages according to the wages given by other firm .Also this can be resolved by keeping the minimum wage rate competitive .

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Rahul Sunny answered 2 years ago

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