Question

Offer an example of sticky wages that you know from your observations

Answer 1

The Sticky Wage theory is an economic huypothesis that the pay of employed workers tends to have a slow response to the changes in the performance of a company or of the economy. When demand for a good falls its price typically falls too. That's how markets adjust to ensure that the quantity of willing suppliers equals the quantity of willing buyers. In this theory things are noi different when the goods in question is labour, the price of which is wages. So it is quite natural to think that wages should fall for the goods and services that workers produce. According to this theory , when unemployment rises, the wages of thoise workers that remain employed tend to stay the same or grow at a slower rate than before rather than falling with the decrease in demand for labour.

Stickness is generaly called as "nominal rigidity".

For example, in the event of a recession in 2008, nominal wges didnt decrease , due to the stickness of wages.