Higher labor adjustment costs increase the effect of a real shock on real GDP growth.

Question

Quizplus · Accepted Answer

Labor adjustment costs refer to the costs associated with firms adjusting their employment levels in response to changes in demand or other economic shocks. When these costs are higher, firms may be slower to adjust to changes, leading to a larger impact on real GDP growth. Thus, higher labor adjustment costs increase the effect of a real shock on real GDP growth.

Higher Labor Adjustment Costs Increase the Effect of a Real