Why is compensation usually negotiated in terms of a nominal wage?
A) because employers want to pay low real wages
B) because workers are concerned only about the nominal wage
C) because firms are concerned only about the nominal wage
D) because wage agreements are based on expected price levels

Question

Why is compensation usually negotiated in terms of a nominal wage?  
A) because employers want to pay low real wages 
B) because workers are concerned only about the nominal wage 
C) because firms are concerned only about the nominal wage 
D) because wage agreements are based on expected price levels

Quizplus · Accepted Answer

Compensation is usually negotiated in terms of a nominal wage because wage agreements are based on expected price levels. This means that both the employer and the employee take into account the expected inflation rate when negotiating wages. While employers may prefer to pay low real wages, workers may not agree to this because they are concerned with the purchasing power of their wages, which is affected by inflation. Therefore, negotiations typically center around a nominal wage that incorporates both expected inflation and the desired real wage of the worker.

Why Is Compensation Usually Negotiated in Terms of a Nominal