Background
Real wage resistance refers to the difficulty employers encounter when attempting to reduce the real wages of employees. Real wages are adjusted for inflation, reflecting the actual purchasing power of income earned.
Historical Context
Historically, real wage resistance has been observed during periods of economic fluctuation when price levels change more rapidly than nominal wages. Post-World War II economies, for instance, saw this phenomenon as governments and employers attempted to curb inflation without severely reducing workers’ purchasing power.
Definitions and Concepts
Real wage resistance is primarily driven by two key forces:
-
Trade Union Opposition: Trade unions often resist wage settlements that do not match or exceed inflation rates to protect their members’ real incomes.
-
Employer Reluctance: Employers might avoid offering wage reductions due to the negative impact on employee morale and productivity.
Major Analytical Frameworks
Classical Economics
Classical economists attribute wage rigidity and real wage resistance to market imperfections that can lead to prolonged unemployment during economic downturns.
Neoclassical Economics
Neoclassical economics explores the role of rational behavior and market transactions in wage flexibility. It often points to market clearances where any resistance would ultimately be eliminated through competitive forces.
Keynesian Economics
Keynesian perspectives consider the macroeconomic impacts, emphasizing that real wage resistance can stiffen wages and thus impede necessary economic adjustments combatting recessions.
Marxian Economics
Marxian theorists highlight the power struggle between labor and capital, suggesting that real wage resistance is a natural reaction of the working class attempting to preserve their standard of living amidst capitalist pressures to maximize profits.
Institutional Economics
Institutional economics investigates the role of institutions, such as trade unions, and their influence on setting wages, thus leading to resistance when any attempts to lower real wages are made.
Behavioral Economics
Behavioral economists explain real wage resistance by considering psychological and sociological factors where workers strongly value fairness and may resist any reduction that they perceive as unfair.
Post-Keynesian Economics
Post-Keynesians propose that wage stickiness, including that resulting from real wage resistance, can cause persistent imbalances in labor markets and argue for better-informed policy interventions.
Austrian Economics
Austrian economists focus on the dynamics of individual decision-making and stress that wage rigidity hampers the natural reallocation of resources which would lead economies back to equilibrium.
Development Economics
In the context of developing economies, real wage resistance can be a significant factor complicating wage adjustments amid economic policies aimed at reducing poverty and improving living standards.
Monetarism
Monetarist approach underscores the need for monetary stability and often regards real wage resistance as an obstacle to achieving such stability due to its inflation perpetuating effects.
Comparative Analysis
Different schools of thought advocate varying solutions to managing real wage resistance, ranging from policy reforms fostering wage flexibility to more robust protections for trade union negotiations.
Case Studies
Case studies from various economic crises where attempts to control inflation were confounded by real wage resistance provide insightful illustrations of this concept in practice. Notable examples include the stagflation period of the 1970s in Western economies.
Suggested Books for Further Studies
- “Wage Determination and Incomes Policy in Open Economies” by S.W. Polachek and M. Wallace.
- “Handbook of Labor Economics” edited by Orley Ashenfelter and David Card.
- “Advanced Macroeconomics” by David Romer.
Related Terms with Definitions
- Nominal Wage: The wage level in current monetary terms, unadjusted for inflation.
- Inflationary Spiral: A situation where inflation continually escalates due to adaptive expectations leading to wage-price spirals.
- Wage Rigidity: Resistance to downward adjustments of wages even in the face of economic pressures.
- Purchasing Power: The quantity of goods or services that can be purchased with a specific amount of money.
