Question

List and discuss 3 reasons why wages may be downwardly sticky.

Answer 1

The first reason is presence of labour unions. They unions exert their bargaining power and do not allow industrialists to decrease wage.

B industrialists often give their workers efficiency wage which is above normal wage to prevent slack off. Thus wages do not fall. It is also said by modern Keynesians that firms pay the workers gift of above market wage and workers reciprocate with higher efficiency

3 By paying wages higher than market clearing wage firms can reduce quit rates and thus recruitment and training costs. This also allows them to develop more experienced and more productive force