Sticky price

Sticky price

Sticky, in the social sciences and particularly economics, describes a situation in which a variable is resistant to change. For example, nominal wages are often said to be sticky in the short run. Market forces may reduce the real value of labour in an industry, but wages will tend to remain at previous levels in the short run. This can be due to institutional factors such as price regulations, legal contractual commitments (e.g. office leases and employment contracts), labour unions, human stubbornness, or self interest. Stickiness normally applies in one direction. For examples, a variable that is sticky downward will be reluctant to drop even if conditions dictate that it should. However, in the long run wages will drop to equilibrium level.

Economists tend to cite four possible causes of price stickiness: menu costs, money illusion, imperfect information with regard to price changes and fairness concerns. Robert Hall cites incentive and cost barriers on the part of firms to help explain stickiness in wages.