Final answer:
The end-of-year bonus is a short-term compensation because it's a one-time payment reflecting performance incentives. Wages are sticky, especially for downward adjustments, due to implicit contracts providing wage stability, and the efficiency wage theory, which links higher pay to better productivity.
Step-by-step explanation:
The end-of-year bonus is sometimes referred to as short-term compensation because it is a one-time payment given at the end of the fiscal year, unlike regular wages which are received periodically throughout the year. This bonus can be seen as a form of performance incentive or a reward for the employee's contribution over the year.
Wages tend to be sticky, particularly with respect to downward adjustments, for several reasons. One is the existence of implicit contracts where employers try to keep wages from declining during economic downturns, and employees accept stable wages during good times. This is akin to insurance, where employees have wage stability in exchange for not expecting large increases during boom periods.
Another reason is the efficiency wage theory, which suggests that higher wages lead to increased productivity. Employers are inclined to offer higher wages to motivate workers to perform better and stay with the company to avoid the costs associated with hiring and training new workers.