If wages rise faster than increases in labour productivity, then unit labour costs will
A)not change because only total labour costs change.
B)rise and the AS curve will shift right.
C)fall and the AS curve will shift left.
D)fall and the AS curve will shift right.
E)rise and the AS curve will shift left.

Question

Quizplus · Accepted Answer

Unit labour costs (ULC) is the ratio of labour costs to labour productivity. If wages rise faster than productivity, then ULC will increase. This means that the cost of producing a unit of output will increase. As a result, the AS curve will shift leftward as higher production costs will reduce the profitability of firms and reduce their ability to supply goods at the same price levels. Therefore, the best answer is E.

If Wages Rise Faster Than Increases in Labour Productivity, Then