Wage Rigidities

Wage rigidities refer to situations where wages do not easily adjust downward even when economic conditions worsen or unemployment rises. This can happen due to factors like contracts, minimum wage laws, or workers' resistance to wage cuts, which make employers hesitant to lower pay. As a result, wages stay sticky, potentially leading to higher unemployment during downturns, or inflation if wages rise faster than productivity during booms. These rigidities impact how quickly economies can recover and influence labor market flexibility.