Why Earnings Stay the Same When the Economy is Always Changing

Have you ever wondered why despite all the fluctuations in the performance in the economy, whether it’s for better or for worse, that your wage approximately stays the same? The issue of wages is actually one of the most controversial discussions in the economic field. Its rigidity in spite of the constant fluctuations in economic performance is a debate discussed by a lot of people.

This concept of relatively unwavering level for wages as the economy rises and falls is termed by experts as wage stickiness. Wage, unlike any other thing in the society, isn’t as affected by changes in the economy. Oil, prices of goods, transportation, and unemployment are some of the things significantly influenced by economic fluctuations. So why is wage not one of them? Economists have not come up with a unifying voice about this but many of them have theorized.

Neoclassical

For neoclassical economists, wages are not, in fact, rigid or unchanging. They stay the same way because the loss or gain is made up for in other aspects of the working environment. Employers are provided flexibility because employees that are unhappy with their wage, more often than not, quit their jobs, implying the voluntary nature of unemployment.

Keynesian

Keynesian economists, meanwhile, believe that the rigidity of wage levels is due to unions and other efficiency which assumes that employees have a common knowledge of the wages of similar employees in other firms.

Others

Other economists attribute wage stickiness to the implicit contract signed by the employee and the employer at the start of tenureship. Although this belief seems fair, it simply isn’t. So what really is it?

In truth, there are really too many and inconsistent variants that factor in to be able to accurately analyze why wage stickiness is an occurring phenomenon. The sensitive relationship of employee and employer is a matter mostly discussed in private. The demand for labor, the production cost, the company revenue, human behavior, and many more are needed in considering wage hike or wage cuts.

For employers, during times of recession, instead of cutting wages, they opt to lay off some people while in times of good profit, they might opt to hire new employees or add bonuses instead of increasing wage. Meanwhile, employees just quit if they don’t like their wage.

In the end, there is no clear answer as why wage stickiness is a thing. However, economists are still continuing their research to one day find a unifying answer as to why wage is relatively unchanging in a constantly shifting economy.