What Role Have Sticky Wages And Prices Played?

By Cyra Master

Question from the National Journal's Expert's Blog: How much of a factor in the downturn have been sticky wages and prices? Can you point to sticky wages affecting the level of employment in particular industries, or sticky prices further dampening demand for some goods and services? Is there anything that government could do to effectively unstick wages or prices? Does the incidence of stickiness indicate that unionization (which is at historically low levels) isn't as much of a factor in sticky wages as once thought?



Robert Litan, VP of Research & Policy, Kauffman Foundation: My impression from anecdotal reports -- in the media and in personal conversations -- is that employers are more willing to offer wage cuts in lieu of layoffs, and employees more willing to accept them, in this downturn than in any previous recession of my lifetime. To the extent this occurs, this will mitigate an otherwise horrific decline in employment. In future years, I suspect there will be a number of economists who will be sifting through the data to whether and to what extent wage cutting in fact has happened.


This article available online at:

http://www.theatlantic.com/business/archive/2009/03/what-role-have-sticky-wages-and-prices-played/1254/