Unless otherwise defined, the inability to adjust nominal wages downward (an economic situation in which a decline in demand and, therefore, a fall in profit is not accompanied by a fall in wages: a downward inflexibility). Wage rigidities are observed by the ECB in the course of the two-pillar principle. If wage costs cannot be reduced when demand for the products of a company or the economy as a whole falls, a situation arises in which the marginal costs (incremental costs) of labor – roughly: what a worker costs per hour – are higher than the marginal product of labor – roughly: what the worker creates in value per hour. But this leads to the reduction of labor: to unemployment. – See stand-by money, unit labor costs, rigidities, structural. – Cf. ECB Monthly Bulletin, January 2006, p. 75 f. (comparison of the U.S. with the euro area; references):
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