Question

I only need to answer this in one or two sentences. Please give a very brief response.

Explain why there could be a coordination problem between firms and workers.

Why would it have negative consequences for a country?

Answer 1

Explain why there could be a coordination problem between firms and workers.

• Lack of coordination among the firms would cause fall in profits of all firms. All firms are hell bent on increasing their own profits and these firms tend to behave in selfish manner and finally all land up at lesser profits.
• Between firms and workers, there is principle and gent problem. Both groups have diverse and different targets and objectives. Hence, workers tend to act contrary to aspired goals of management. Ultimately, profits margin of firms fall.
• Further, during the recession, few workers refuse to accept lower wage which render many workers unemployed.

                                   

Why would it have negative consequences for a country?

• Lack of coordination among the firms create problem for firms. Output level of firms fall thereby output level of whole country falls.
• Such lack of coordination among the firms and workers make recession severe and long lasting.