Wages are flexible if they react to changes in demand and supply. Profitability determines demand and supply level for wages. Flexibility in wages means that If the economy is performing well, companies should compensate their employees better.
Wage inflexibility implies that wages will not respond to changes in demand and supply. Wages do not rise or fall if the marginal productivity of labor increases or decreases. Wage contracts are agreements that tend to set compensation for workers regardless of their output. Minimum wage is a regulatory requirement that demands workers not to be paid below a set rate. Wage efficiency recommends higher than market rate compensation to motivate productivity.
The three factors do not advocate for wages to be pegged on productivity.
The global economy of the 21st century can be summarized as: <span>an economic system that is more favorable for international business. Trade and imports are at an all time high, especially into the United States from places like China, Japan, and Hong Kong.</span>
