Question

Wages tend to be sticky a. because of contracts, social norms, and notions of fairness. b. because of contracts, but not social norms or notions of fairness. c. because of social norms and notions of fairness, but not contracts. d. None of the above are correct.

Answer 1

Answer:

A is the correct answer.

Explanation:

Sticky wage theory is widely accepted by economists, according to the proponents of Sticky wage theory, the wages are sticky because workers are always willing to accept pay rise but not the cuts. It also hypothesizes that the relation of employees' income has a slow response to the changes in the performance of a company. When unemployment increases, employees' wages stay stagnant or grow at a slow pace and never fall with the decrease in demand for the labor. That is why wages are considered to be sticky-down, which means they can move up easily but move down with difficulty.