Wages are sometimes described as sticky-down, suggesting that they can easily move up but can only slowly move down. The economist John Maynard Keynes is credited with developing the theory, calling the issue "nominal rigidity" of wages.
According to the sticky wage theory, changes in employee pay are typically slow to reflect changes in business performance or the state of the economy. The sticky wage theory contends that employee pay is resilient to decline even under deteriorating economic conditions, and that when unemployment rises, the wages of those workers who remain employed tend to stay the same or grow at a slower rate rather than declining with the decrease in demand for labor. This is because employees will fight against a pay decrease, and if profitability drops, a business will try to cut costs elsewhere, even by laying off employees. Since salaries are frequently "sticky-down," the effects of inflation instead lead real earnings to decline. "Stickiness," a central tenet of Keynesian economic theory, has also been observed in other contexts, such as in certain pricing and taxation rates.
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