WAGE STICKINESS Meaning and
Definition
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Wage stickiness refers to a concept in economics that describes the reluctance or inability of wages to adjust downward in response to changes in economic conditions, such as shifts in the supply and demand of labor or fluctuations in business cycles. It implies that wages do not quickly or fully respond to changes in market forces, creating a situation where wages tend to remain rigid or sticky over time.
The idea behind wage stickiness is rooted in the assumption that there are various factors that impede wage adjustments. These factors can include institutional factors, such as minimum wage laws or labor union agreements, as well as psychological factors, such as workers' reluctance to accept wage cuts. Additionally, wage stickiness can be influenced by factors like social norms, fairness concerns, and the potential impact on worker morale and productivity.
Wage stickiness can have implications for the labor market and broader economic conditions. When wages are sticky, they may not align with market equilibrium, resulting in imbalances between labor supply and demand. For example, during periods of economic downturns, sticky wages may lead to higher unemployment rates as employers are unwilling or unable to reduce wages to match the decreased demand for labor. Conversely, in times of economic expansion, sticky wages may result in labor shortages as wages are not adjusting upward to attract more workers.
Overall, wage stickiness captures the idea that the adjustment process for wages is not instantaneous and can have implications for labor market dynamics and overall economic performance.
