When you disaggregate the data at the state level, wages don’t look so sticky any more:
…states that experienced larger employment declines between 2007 and 2010 had significantly lower nominal wage growth during the same time period…Our estimates suggest that real wages also vary significantly with local measures of unemployment at the state level…there is a strong relationship between local employment growth and local wage growth at business cycle frequencies.
In other words, the supply and demand model doesn’t do so badly after all.
So why do aggregate wages appear so sticky in the data?
…not because wages are sticky in the aggregate, but because different aggregate shocks have relatively offsetting effects on aggregate wages.
And in conclusion?:
…we find that a combination of both “demand” and “supply” shocks are necessary to account for the joint dynamics of aggregate prices, wages and employment during the 2007-2012 period in the US…