Efficiency wage theory and sticky wages help explain the slow self-correction from declining aggregate demand in an economy.
Efficiency wage theory posits that paying workers more can increase their productivity, leading to slow wage adjustments during economic downturns. This theory, along with the concept of sticky wages, explains why self-correction from a decline in aggregate demand in the economy may be slow. In contrast, minimum wage laws, although relevant, do not directly address the issue of sluggish wage adjustments in response to changes in aggregate demand.
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