Macro 102 Week 4 DQR

Macro Week 4 DQR

David Scaggs

Good morning everyone,

What is price-wage rigidity? This is a tricky subject for me, however, I will explain it in the best possible way with the information provided to me. The closest or similar term that I found was nominal rigidity which is also known as wage or price-stickiness. It is define as a situation in which a nominal price is resistant to change. I will also break down price-wage rigidity to price rigidity and wage rigidity. Price rigidity occurs when both supply curve and demand curve shift toward the same direction proportionally. Wage rigidity occurs when the product price is rigid and the firm is willing to pay the firm is willing to pay previous wage. (Ting, 2017) There is also the theory of sticky wage. It argues that employee pay is resistant to decline even under deteriorating economic conditions. This means that employees will go against pay cuts causing firms to cut costs in other areas, such as layoffs and firings. (Hayes, 2020)

Do I agree with Keynes assessment that wage-price rigidity requires government's involvement in the markets? I do not think the government should be involve. One of the main reasons I can think of is that the government has, directly or indirectly, caused this rigidity. A good example of this would be the FedEx pilots strike that happened earlier this year here in Memphis, TN. Their main concern was dissatisfaction with negotiating a deal for better pay, retirement, and quality of life issues while in discussion with the pilots union.

Ting, Chao Chiung. 2017. Price Rigidity and Wage Rigidity: Market Failure or Market Efficiency. https://ccsenet.org/journal/index.php/ijef/article/view/70392

Hayes, Adam. 2020, November 30. Sticky Wage Theory: Definition and Importance in Economics. https://www.investopedia.com/terms/s/sticky-wage-theory.asp

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Christopher Fowler

Hello Classmates,

I have heard of these theories before dealing with economical sustainability with goods being a major factor in an employee’s way of life. Keynesian economists do have a point with a product sharing close to the same value of production in order to support the consumer and employee equally as a whole. Although this is not the case for certain nations or economies with the government dictating what a price is demanded for on the global market in comparison to the internal demand and price inside their boarders. While the classical take on prices and quantities fluctuating to meet the possible market in the near to far future does appear to broaden investment globally. This take brings in more of a point of view on selling and commercializing being the definer on prices and revenue generated through international trade.

Price Wage Rigidity demands that goods prices and wages are solid without any sort of difference in comparison of value. Keynes believe that workers should never take a pay cut even when the demand for the product is low. This ideology keeps to the mindset that no matter the supply or demand for any certain product the wages cannot change for those employees.

I do not agree with Keynes point of view on this matter. Markets and economies fluctuate continuously. To put a solid line that dictates that a price or wage cannot go below a certain line sets the consumer and employee up for failure. If one of the two does not meet the standard demand. This would then hurt the products price’s true value with the economy being the obvious sign of decline. It is better to have less government involvement to ensure the legitimate freedom on the market.

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