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Wednesday, January 6, 2016
I've heard sticky wages mentioned as a reason that markets don't adjust quickly, but aren't all prices sticky in the short term?
Wages are fundamentally a price of labor, and in the long run all prices adjust to the market. It would seem to me that any lag in wages falling due to worker discontent would also be seen in a lag in pay raises for inflation. Similarly adjusting the prices of finished goods up or down also has incentives for some delay, in consumer satisfaction and maximizing profits respectively. What is your view on this, and would you recommend anything to read on how markets adjust to inflation and deflation?