According to empirical estimates,when wages are increased by 10%,the quantity of labor demanded typically falls by about
A) 3% in the short run, but 6% in the long run.
B) 5% in the short run, but 10% in the long run.
C) 10% in the short run, but 20% in the long run.
D) more in the short run than in the long run.

Question

Quizplus · Accepted Answer

Empirical estimates suggest that when wages are increased by 10%, the quantity of labor demanded falls by around 5% in the short run and around 10% in the long run. This phenomenon is explained by the fact that when wages increase, firms find it more expensive to hire workers and may substitute capital for labor, leading to a decrease in labor demand. In the short run, firms may not be able to adjust their production processes quickly enough to fully substitute capital for labor, but in the long run, they can invest in new machinery and technology to reduce their dependence on labor. Hence, the elasticity of labor demand is higher in the long run than in the short run.

According to Empirical Estimates,when Wages Are Increased by 10%,the Quantity