Expectations - Reality = Adjustment or Disappointment

John Maynard Keynes was the father of the Keynesian economic school of thought. Spurred on by the Great Depression, Keynes decided that a new look should be given to that of David Ricardo and Adam Smith's classical approach. One item of great debate was that of sticky wages. Although I am partial to the economic view, this is one area in which I agree with Keynes. Keynes stated that as business cycles occur and unemployment ensued that employees attempt to hold on to their wages. Although one might have been able to argue this in the past, can we argue this in our present day situation? Here are a few reasons why I feel that wages are sticky:

1) Unemployment compensation - employees that receive unemployment receive a portion of the income that they had earned previously each month/week. The goal is to able to allow them to support themselves and possibly family while looking for a new job. Having this compensation allows these ex-employees to try to find a job of equal or comparable pay. As the deadline for unemployment severence nears the wage expectations should decrease, but slowly as time drags on. By doing this the wages do move towards equilibrium, but they do so at a slow rate and as more unemployment ensues, expectations will change in a given employment industry to meet the price and quantity of that labor market equilibrium.

2) Unions - wages are extremely sticky in unions, but this may create unemployment because we are placing a minimum on what we will expect for pay. So when an impass is reached, the lowest on the seniority list are let go or if a strike is decided upon, there is more reason for market failure, business opportunity costs, and an excess of demand over supply leading to deficit in the ability of that business to supply that quantity demanded.

I'm not insuating that these things are bad, but that, in fact, wages are sticky and tend to move down slowly. For example, if I sell a care and I am asking a high-end price for that car, I must wait and see who will bite. If there is no bite, time and reason beckons me to lower my expectations until I sell my vehicle or dispose of it.

So we see that: Expectations - Reality = Adjustment or Disappointment