European Regional Development Fund

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Why (don't) wages fall in a recession?

Published 6 years ago by BlackDigits

Question: Don't wages fall all the time? 

Answer: Real wages fall all the time, and nominal wages often fall when workers change jobs.  But nominal wages hardly ever fall for a given worker at a given job - even when there's massive excess supply of qualified labor.

Question: OK, so why don't nominal wages fall for given workers at given jobs? 

Answer: Because almost all employers realize that nominal wage cuts are terrible for morale - and bad morale is bad for worker productivity.”


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