Question

Name and explain some of the reasons why wages are likely to be sticky, especially in downward adjustments.

Short answer

These are sticky because of various reasons.

Step-by-step solution

Step 1. Definition

The theory of sticky wages is an economic concept explaining how the wages adjust steadily to the changes in the workforce market conditions.

Step 2. Introduction

Sticky wages mean that the wages don’t decrease when the worker's demand decline.

Step 3. Explanation

Wages are likely to be sticky especially in downward adjustments because of the following reasons:

1. Labors normally prefer fixed wages with long-term contracts this is because when the workers are in fixed contracts, they have borne no consequences of unemployment caused by sticky wages.

Step 4. IMPLICIT CONTRACT: 

2. some workers want to work under implicit contracts which means they try to prevent falling wages when the economy is not strong.

Step 5.EFFICIENCY WAGE THEORY 

3. this is another reason in which the workers' productivity depends upon the number of their wages. Here employers prefer to pay them more than the market rate, because when they pay more the productivity of the employee increases.

Step 6. INSIDER OUTSIDER MODEL: 

4. this is the reason why the existing workers are insiders and new workers are outsiders. And a firm is more dependent on existing employees so cutting wages will demotivate the insiders which are not good for the production of the company.