Sticky Wage Theory

Dictionary Says

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 Says

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.

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