Sticky wage refers to:

• A. Nominal wages that are slow to fall even in the face of high unemployment and slow to rise even in the face of labor shortages.
• B. Nominal wages that adjust instantly to market conditions.
• C. Wages anchored by long-term contracts that adjust monthly.
• D. Wages that are completely flexible in the short run.

Answer: (A)

Sticky wages means pay doesn’t move quickly in response to changing conditions in the labor market. The most important aspect is that nominal wages are slow to fall when unemployment is high and slow to rise when there is a shortage of workers. This inertia helps explain why recessions can persist and why wages don’t fully match market conditions right away. Factors like long-term contracts, norms against cutting pay, and efficiency/firm incentives all contribute to this reluctance to adjust. If wages adjusted instantly to market conditions, or were completely flexible in the short run, the pay would not be described as sticky. Descriptions that imply some monthly adjustment or any instant flexibility don’t capture the characteristic inertia of sticky wages.