wage rigidity

wage rigidity
The tendency of wage rates to be ‘sticky’, and not to adjust so as to clear the market in the short run. There are several reasons for this. Adjustment in the labour market involves the selection of suitable staff by employers and a search for suitable jobs by workers: this takes time, and at any moment nobody knows what the market-clearing wage rate would be. Workers resist cuts in wages, and employers, who know that if wages are once increased there will be strong resistance to lowering them again, are reluctant to grant wage increases during a temporary labour shortage. Where wage rates are decided by collective bargaining, neither side may be keen to disturb an agreement which cost much effort to reach. See also wage resistance.

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