Sticky wages

Last week, the employees of Bartle Bogle Hegarty, an advertising agency and, as such, perhaps not noted for its caring, sharing outlook on life, became the latest firm to vote for a pay cut for all, rather than redundancies for some – 99.5% in favour, in fact. Just as the employees of JCB did a few months ago. And Sheffield council workers. And employees of the Wiltshire-based company Airsprung. And a whole host of other firms, just not the one that runs the country; our dear elected representatives voted themselves a 2.33% pay rise.

 

That\’s an interesting little point. No, not about the MPs and the trough, but about wages being cut. Isn\’t it part of the underlying structure of Keynesianism that wages are sticky downwards? And that because they are an economy cannot be left to sort itself out but must be stimulated?

But if wages aren\’t sticky downwards, doesn\’t that undermine the entire thesis? And make the Austrian analysis more reasonable?

2 comments on “Sticky wages

  1. Private sector wages are less sticky downwards. Public sector ones are very sticky indeed. And we solve this imbalance by… increasing public spending, hiring many more sticky employees.

    As Private Eye would say, “trebles all round!”

  2. Yes.

    Austrian’s though agree that sticky prices exist. They don’t think though that they are limited to wages. Many other prices are sticky too.

    Prices transfer information about scarcity and do so imperfectly and slowly. Slowly because they’re sticky.

    The problem with inflation as an answer to recessions is in the information transfer part. If central banks increase all prices then people must compensate. Certainly the “downward sticky wages” problem is reduced. All manner of other problems though are increased. Especially relating to the prices of long term capital goods.

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