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Economists have long puzzled about why even some currently unemployed workers could not simply reduce their wage requirements by a substantial amount and encourage firms to hire them. There is a nice literature on this which includes explanations such as unmeasured productivity, the signaling implied by such an offer, the matching difficulty between potential workers and firms, and more.

I like to use this thought experiment to understand the extent of the “problem.” Think about your boss and the work that he or she does. If it were socially acceptable to do so, and penalties for asking would not flow down on you, what do you think the chances of you being promoted to replace your boss would be, right now, if you walked into his or her boss and said, “Hey, I can do everything that they can do in this job, and I am willing to do it for 30% lower compensation!”

What would you learn from such an exercise? Are you likely to be successful? Does it depend on what industry or occupation we are talking about? Inquiring minds want to know!

3 Responses to “Sticky Wages Thought Experiment”

  1. Harry says:

    Are we to assume the boss is not the owner of the enterprise, and that his boss is a rung or two below someone who thinks like an owner? (Note: I am not being flip, nor am I assuming anybody in the organization thinks like an owner.)

    In any event, if I were to be so foolish to tell him I am willing to take his job for thirty percent less (and by implication tell him I have discussed the benefits to the company with HIS boss), I would be wise to have lined up a better job elsewhere. A corollary question would be whether one should wear one’s pink power tie to the meeting.

    Of course, if one is the owner, one’s compensation is infinitely non sticky, highly lubricated. If I were in that situation, and if the boss in question were not a brother-in-law, I would see the situation as a business opportunity.

  2. Harry says:

    Picking up on WC’s first sentence referring to how economists (no, I am not taking a shot at Wintercow) have wondered about the unemployed proletariat, as in how come do they not offer their toil for exploitative wages, as in, for example, offering to be a TA at Wharton, and live in a motel room overlooking the Schuykill River to continue life as a professional student, what is so surprising about that?

    Nobody ever wants to take a pay cut, particularly if their fixed charges have grown. Putting aside any judgement about the wisdom of the mortgage on the six-bedroom house , the RV, the ATV, the boat, and the ten IPhones for the eight kids and Mommy and Daddy, plus the Comcast bill and the insurance for four cars, plus the real estate taxes, life is tough.

    Yes, when times get tough, wages are sticky. Why is that a mystery?

    • Harry says:

      I guess “sticky” wages is not the rage of conversation among the hipsters, WC. I thought it is interesting, but then I would leap for a back issue of The Holstein-Friesian World if they had one where I get my hair cut.

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