Even with a constant money wage, a recession can cause a significant decline in real income.

Question

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During a recession, the overall level of prices tends to fall due to decreased demand for goods and services. If money wages remain constant while prices are falling, the purchasing power of wages will increase, and workers will be able to buy more goods and services with the same amount of money. However, if unemployment is high during a recession, workers may experience a decline in their nominal income, and the purchasing power of their wages may also decrease. Additionally, workers may have to work fewer hours, further reducing their real income.

Even with a Constant Money Wage, a Recession Can Cause