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Things are getting sticky

December 11, 2008 - Lee Smith
There was more bad news out Thursday about the U.S. jobless rate. For the week ending Dec. 6, it reached 573,000, up from 515,000 the previous week. Businesses are shedding jobs amid the economic downtown and perceptions that 2009 will not be a good year for them either. Unemployment could reach 10 percent.

This is part of the reality of a market going through several problems at once. These include a financial crisis, housing market collapse, automaker insolvency and the tapping out of the American consumer, who has run up too much household debt. The market will find a floor and recover. The time it takes to do so is what becomes painful to those out of work and those worrying about losing employment.

When it comes to job losses, there is another factor in play, but not one the average person hears a lot about. It is known as "sticky" wages; one of several "sticky" issues in economics. What it boils down to is this: Workers become accustomed to the level of their paychecks. They base other decisions (mortgages, car loans, etc.) on them. During a recession, this long-term view leads workers to favor job cuts for some percentage of their co-workers rather than wage cuts for all. Thus, wages are kind of "stuck" at current levels and cannot deflate, which would preserve jobs.

Another way to look at it: It is generally easy to unite labor for upward pressure on wages. Unity gives way when it comes to job preservation.

Of course, if there is enough potential pain for enough employees, they will yield to sharp revisions in wages to save all their jobs. Hence the United Autoworkers coming concessions in Detroit.

 
 

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