Sticky Wage Theory

AAA

DEFINITION of 'Sticky Wage Theory'

An economic hypothesis that the pay of employed workers tends to respond slowly to the changes in a company's or the broader economy's performance. When unemployment rises, the wages of those 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 labor. Specifically, wages are said to be "sticky-down" since they can move up easily but move down only with difficulty.

INVESTOPEDIA EXPLAINS 'Sticky Wage Theory'

Some economists don't believe that wages are sticky. Those who do have posed a number of theories as to why wages are sticky: it is difficult for workers to accept pay cuts; some workers are union members with long-term contracts or a company may not want to expose itself to the bad press associated with wage cuts. By contrast, the prices of goods tend not to be sticky; their prices change easily and frequently in response to changes in supply and demand.

RELATED TERMS
  1. Sticky-Down

    A figure that can move higher relatively easily, but only will ...
  2. National Average Wage Index - NAWI

    An index calculated annually by the Social Security Administration ...
  3. Living Wage

    A theoretical wage level that allows the earner to afford adequate ...
  4. Minimum Wage

    The minimum amount of compensation an employee must receive for ...
  5. Price Stickiness

    The resistance of a price (or set of prices) to change, despite ...
  6. LLC Operating Agreement

    An LLC Operating Agreement is a document that customizes the ...
Related Articles
  1. Examining The Phillips Curve
    Economics

    Examining The Phillips Curve

  2. The Minimum Wage: Does It Matter?
    Insurance

    The Minimum Wage: Does It Matter?

  3. Why Wages Stick When The Economy Shifts
    Options & Futures

    Why Wages Stick When The Economy Shifts

  4. The Economics Of Labor Mobility
    Economics

    The Economics Of Labor Mobility

comments powered by Disqus
Hot Definitions
  1. Market Segmentation

    A marketing term referring to the aggregating of prospective buyers into groups (segments) that have common needs and will ...
  2. Effective Annual Interest Rate

    An investment's annual rate of interest when compounding occurs more often than once a year. Calculated as the following: ...
  3. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  4. Odious Debt

    Money borrowed by one country from another country and then misappropriated by national rulers. A nation's debt becomes odious ...
  5. Takeover

    A corporate action where an acquiring company makes a bid for an acquiree. If the target company is publicly traded, the ...
  6. Harvest Strategy

    A strategy in which investment in a particular line of business is reduced or eliminated because the revenue brought in by ...
Trading Center