Wage Rigidity

Wage Rigidity

The general difficulty a company experiences in trying to reduce wages. Whether because of a labor agreement, fears for lost productivity or other reasons, companies often find it hard to reduce employee wages or salaries. For this reason, many (though far from all) companies elect to conduct layoffs rather than wage reductions when facing losses or lower profits. See also: Wage resistance.
References in periodicals archive ?
On the contrary, in the fair wage model, the degree of wage rigidity is governed by the importance of past wage and steady state wage in the reference wage norms, if [[gamma].sub.2] is larger, more emphasis is placed on past and steady state wages.
A decline in real wage rigidity could explain the increase in cyclicality of the labor force participation rate since 1984, as well as the divergent paths of prime-age and older workers.
Sluggish wage growth in the post-recession era can predominantly be attributed to nominal wage rigidity, still-high underemployment, and an elevated share of part-time workers.
In the absence of wage rigidity, these distortions would enter through the labor supply condition
Daly and Hobijn (2015) argue that downward nominal wage rigidity is an explanation for the lack of movement in the opposite direction of wages and unemployment during the 2007-09 downturn and the subsequent recovery.
Keynes himself placed downward wage rigidity in the centre of his theoretical system as one crucial assumption underlying his theories.
At issue, the economists write, is the phenomenon of "nominal wage rigidity." While it does not affect all industries equally, many types of companies are reluctant to trim wages when trouble arrives and workers resist pay cuts.
The decline in real wage rigidity in Europe has been showed by Goette et al.
(2007) find a considerable degree of wage rigidity across 15 European countries and the US.
But one theory I should have mentioned involves what economists call "downward nominal wage rigidity.'' In plain language, workers don't like to see their wages cut, even in hard times.
Keynesians often point to wage rigidity as a reason why employment markets don't work smoothly-why, in a recession, workers aren't willing to take a cut in pay rather than lose their jobs and why employers are not willing to reduce pay rather than lay employees off.