What exactly does downward sticky mean, in terms of wages and macro economics? From my understanding wages are downward sticky, meaning it is harder for industries to lower wages to try and induce an increase in supply and thus pull economies out of recession. I mean after all, who likes to have their wages cut. But I don’t see how the words downward sticky mean that. any thoughts?
why wouldn’t you see the meaning it’s exactly what you said when they need to be lowered they stick to the old level… they have downward resistance
Downward sticky = once they are lowered, it’s sticky down there…hard to bring the wages back to where they were. Imagine lowering your ghand into crazy glue…easy to lower your hand to that level, not so easy to then raise your hand back up.
florinpop and smarshy, your 2 definitions are different. That was my problem, I conceptual agree with florinpop(downward resistance), but the name sounds like what smarshy is describing (upward resistance).
I thought it became sticky once you tried to push it downward…
Well, firstly, econ is not my strong suit. But, that said, I seem to get this particular question right if/when it pops up. I believe that the problem with wages being downward sticky is that once they are lowered, it is hard to raise them back up. But I could be wrong. Other input on this would be helpful…
Actually I think it would be easier to raise wages than lower them…what employee does not like a raise? If you try to lower wages you run the risk of losing employees and in general lose part of your labor force. So I agree with florinpop, it means downward resistance… anyhow this is probably a very very minor part of the test…some people even recommend skip reviewing econ in general…haha.
I agree with your logic, however, it’s easier to get a FIRM to lower wages than it is to get a firm to raise them back up…that was my thinking.
sticky= in general resistant to change downward sticky=no worker will work for less. at least not me not. lol would go with florinpops answer.
Downward Sticky is mentioned in the Stalla text with respect to description for the Keynesian theory. When Aggregate demand shifts down in the AS-AD analysis, the prices would tend to move down. Keynesians believe the resource prices (wages e.g) are downward sticky (would not tend to automatically move down in the short run) and hence government intervention in the form of “easy money”, “lower taxes” or “increase in government spending” is required to stimulate the economy to return to the full employment level quickly. Otherwise there would be long periods of recession / unemployment only after which the resources would agree to a reduction, so that the SRAS curve can shift to return the economy to full employment. CP