Thanks
If unemployment rises in a recession , wages should fall . But they do not ( downward sticky ) . Keynesians and monetarists believe Government should step in and stimulate demand , because otherwise recession effects would be exacerbated.
I don’t think it’s they don’t fall at all, it means that it won’t fall as much, hence the term “sticky,” more reluctant to fall.
Think of it this way, when the economy’s booming and inflation is on the run people will demand higher wages, since stuff is getting more expensive However, when we are in recession, wages are down sticky. Think of it this way, they are sticky/glued and wont move, or its very difficult. for them to move down to save the economy(just as Keynesians/Mone ppl said). If i’m working at Mcdonalds for 2 years, and was making 10$ an hour, just because we are in a recssion and unemployment increases, my wages do not get cut to 9$/ an hour(although they should). They are sticky and wont adjust. and This is one of the problems why classical economists view of how wages adjust to restore long run equilibrium doesnt really work.
Good analogy, vinnie. That was helpful to see it in an example of real-life context. Appreciate it.
Great thanks - got it
Is it just me, or does that sound more like upward sticky? For instance, gas prices are upward sticky (for the most part). While the price of gas may fall after a large spike in price, they will not fall back down to their original levels. Think of it this way; immediately after 9/11, prices spiked from under $1/gallon to $1.20+ a gallon. While prices came back down, they never returned to the original sub $1/gallon price. After hurricane Katrina, prices spiked again. When was the last time you saw gas under $2/gallon? You could argue that this is due to supply, but only to a certain extent. In the 1980’s, we saw insane amounts of inflation (technical term =P). Prices soared, and thus, wages soared. Today, while inflation (and thus rates) are very low, wages will not return to previous levels. They are “stuck” at higher levels. You can also replace wages and gas with Medicare. Try telling grandma that we should reduce her medicare benefit, because it will help the country as a whole.
No, downward sticky, they are upward lubricated, and downward sticky, kind of like in real life, eh? No one is opposed to making more money, so no one wants to “stick” on the way up, however, no one wants to make less money so they try to “stick” on the way down.