Output Gaps and Wage Flexibility, Case Study Example

Unemployment is costly to employers, employees, and the economy as a whole. What are some explanations for the coordination failures that prevent workers and employers from reaching agreements?

In the United States, unemployment represents a continuous and challenging condition for which there are probable solutions but difficult battles. Many prospective employees are seeking work at specific income levels and are either unwilling or unable to accept salaries with lower wages for personal reasons. In other cases, it is likely that positions within the field of choice are not available due to limited demand or reductions in the workforce. Furthermore, the ability to achieve flexibility within the wage pool is often limited in many industries, particularly when unions are involved. Finally, some prospective employees do not believe that the combination of wages and benefits that are offered are sufficient, and therefore, positions are turned down. Each of these issues contributes to the lack of compromise that often exists between workers and their prospective employees across different settings.