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I also think it's overblown. Sticky wages were a friction on the gold standard, but I haven't seen evidence that they were actually a huge problem.
One issue with employers assuming that risk now is that it's more difficult to fire employees, so it might lead to more reluctance in hiring. I've heard that's a fairly large friction in European labor markets.
I'm almost certain that under a frictionless competitive model you'd be able to derive some kind of equivalence result, similar to equivalence of tax incidence in competitive markets.
Aren't labor protections asymmetric? What would be the equivalent on the other side?
I just woke up, so maybe my brain is missing something obvious.
I think I meant that absent artificial frictions like labor protections, the impacts would be symmetric.
But even with labor protections, I imagine that some kind of equivalence would still result under rational expectations models. I don't think it's obvious, it's more like my intuition tells me that only one allocation of surplus would be admissible in equilibrium
I think I see what you're getting at. Do you think differences in risk aversion between firms and workers would actually make the incidence matter?
yes I can see that too. if utility is not linearly transferable then my guess is you'd lose equivalence
...if there's anything fundamental that says it couldn't be the norm.
There's lots of handwaving nonsense in econ literature claiming nominal rigidities are natural, just part of the world. Natural. Even desirable on some psychological level
I'm not familiar with the empirical case for sticky wages at the end of the 19th century. Is it bunk?
What about menu costs?
Mostly. But I haven't looked into it deeply.
Quantity, piecemeal work etc, was more of a concern than the exact hourly/daily remuneration.
I know the right places to go research this, tho. (But the book I have in mind is like $100)
This is one of the arguments that a mainstream economist brought up against me when I was explaining bitcoin (#998456)
To be honest, I think the concern is probably overblown.
As with anything in economics, there are two sides to the coin.
Currently, employees bear the risk of inflation through nominally rigid wage contracts. In fact, a large part of the anxiety the regular person feels is their need to constantly fight for wage increases to keep up with inflation. In this world, employees fight for wage increases, and firms either give it to them, or employees stay and fall behind, or they leave.
Would it really be so bad if employers bore the risk of deflation through nominally rigid wage contracts instead? It's hard for us to envision because it's not the norm, but I don't know if there's anything fundamental that says it couldn't be the norm. In this world, firms fight for wage decreases, and employees either accept them or not, and if they don't accept them they leave. Or the firm just gives in and keeps wages rigid while accepting less profit or making other adjustments on the margin.