Flexible wages

Updated: Aug 20, 2021

Wages that adjust instantaneously in response to a change in economic environment to balance supply and demand for labour. In some economic theories it is assumed that real wages are flexible but nominal wages are 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; New Keynesian economics; Taylor contract.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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