Final answer:
It does make sense that wages are sticky downwards due to factors like employee dissatisfaction, contracts, and morale issues, while upward adjustments are less sticky due to expectations of keeping up with inflation.
Step-by-step explanation:
It does make sense that wages could be sticky downwards but not upwards, particularly due to psychological and practical reasons. Downward wage adjustments tend to lead to employee dissatisfaction as they can significantly affect morale, loyalty, and living standards. Upward wage adjustments on the other hand, are generally accepted and even expected due to inflationary pressures and the cost of living increases; thus, they are less likely to be sticky.
There are several key reasons why wages might be sticky downwards, which reflect common features of labor relationships throughout the economy:
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- Contracts and collective bargaining agreements often prevent wages from falling.
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- Workers may resist wage cuts as they have financial commitments based on their expected income.
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- Employers may be reluctant to cut wages due to the potential negative effect on productivity and morale.
On the other hand, market forces do influence wages adjustments both upwards and downwards, but the resistance to lowering wages in a slump is more pronounced because of the aforementioned factors. While sticky wages might particularly apply during economic downturns, the phenomenon is more complex than a simple linkage to the economic cycle and involves a blend of economic, psychological, and contractual elements.