Question

What's the main root cause for having to make Net Adjustments?

Answer 1

Wages can be sticky, especially in downward adjustments, due to factors such as efficiency wages, contracts, employee morale, and market norms.

Step-by-step explanation:

In downward adjustments, wages can be sticky due to several reasons:

1. Efficiency wages: Employers may offer higher wages to motivate and retain productive workers. These wages are set above the market equilibrium to attract skilled employees and increase productivity.
2. Contracts: Some workers have long-term contracts specifying their wages. In such cases, employers may find it difficult to cut wages during downturns.
3. Employee morale: Reducing wages can demoralize workers and lead to reduced productivity and quality.
4. Market norms: Workers may compare their wages to others in the same industry and resist downward adjustments.