|
|
|
|
|
Sticky (Economics)Sticky is a term used in the social sciences and particularly economics used to describe a situation in which a variable is resistant to change. For example, wages are often said to be sticky. Market forces may reduce the real value of labour in an industry, but wages will tend to remain at previous levels. This can be due to institutional factors (like labour unions), human stubbornness, or self-interest. Stickiness normally applies in one direction. For example, a variable that is "sticky downward" will be reluctant to drop even if conditions dictate that it should. Examples of stickiness Consider the jobless recovery of 2004. Many firms, during the recession, laid off workers. Yet many of these same firms were reluctant to begin hiring, even as the economic situation improved. The result was weak job growth during the recovery: Even when net job growth was positive, it failed to keep pace with the growing labor force. Wages, prices, and employment levels can all be sticky. Normally, a variable oscillates according to changing market conditions, but when stickiness enters the system, oscillations in one direction are favored over the other, and the variable exhibits "creep"-- it gradually moves in one direction or another. This is also called the "ratchet effect". Over time a variable will be ratched in one direction. For example, in the absence of competition, firms rarely lower prices, even when production costs decrease (i.e. supply increases) or demand drops. Instead, when production becomes cheaper, firms take the difference as profit, and when demand decreases they are more likely to hold prices constant, while cutting production, than to lower them. Therefore, prices are sometimes observed to be sticky downward, and the net result is one kind of inflation.
|
 |
|
| Copyright 2005-2009 OnPedia.com. All Rights Reserved |
|
|