A tendency for certain economic variables, notably prices and wages, to ‘stick’ at or near their existing levels despite changes in supply and demand. For example, companies rarely cut the wages of existing employees, even where market forces might seem to demand this; wages (like prices) are therefore said to be ‘sticky downward’. Various factors have been cited to explain such stickiness; these include the role of long-term fixed-price or fixed-wage contracts and the hidden costs of repricing (see menu costs). See also ratchet effect.
Subjects: Financial Institutions and Services — Accounting.