flexible wages

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Wages that in response to a change in economic environment adjust instantaneously to balance supply and demand for labour. In some economic theories it is assumed that while real wages are flexible the nominal wages tend to be fixed in the short run (by wage contracts, unionized bargaining, etc.). This assumption of nominal rigidity in the labour market is used in such theories to explain involuntary unemployment. See also expectations-augmented Phillips curve.

Subjects: Economics.

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