The importance of wage flexibility arises from the fact that, in a wide range of economic models, there is an inverse relationship between wages and employment. Unemployment is thus associated with wages in excess of the full employment level, and the persistence of unemployment then depends on how quickly wages adjust in the face of unemployment. It is often argued that if wages were very flexible, unemployment would be eliminated quickly and automatically by wage cuts, and that consequently any persistence of unemployment must be ascribed to wage inflexibility.
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