How Well Have Rural and Small Metropolitan Labor Markets Absorbed Welfare Recipients?. Effect of Recession


In 1993, the economy had just started to recover from a recession. In the presence of downward wage rigidity, we have reason to believe that the economy was not at equilibrium. The recession created an excess supply of individuals who were willing to work at the prevailing wage, but who were unemployed because wages did not adjust downward. When the economy began to recover, employers began to demand more labor. The presence of unemployed workers in the low-skill labor market would have allowed an increase in employment without an increase in wages.