Final answer:
Unit labor costs will not rise with wage rates if productivity gains exceed wage increases, as seen in the 1970s U.S. economy, where slow productivity growth led to high unemployment and a slow wage adjustment.
Step-by-step explanation:
Unit labor costs will not rise in unison with wage rates if productivity gains are greater than wage increases. This can be explained by reflecting on the U.S. economy during the 1970s, where productivity growth unexpectedly slowed. When productivity increases, the demand for labor shifts outward, leading to higher equilibrium wages. Conversely, when productivity growth slows or stops, wages continue to rise due to ingrained expectations of wage increases, despite the lack of increased demand for labor. This results in a situation where the quantity of labor supplied exceeds the quantity demanded, leading to unemployment. Eventually, wages will adjust to the slower gains in productivity, but this is a slow process. Hence, the correct answer is C. the gains in productivity are greater than wage increases.