Costly wage adjustments impact optimal fiscal and monetary policies. The study shows that the optimal rate of price inflation can vary greatly over time due to sticky wages. Unlike traditional models, this study considers shared rents from long-term employment relationships, allowing for larger fluctuations in real wages. This means stabilizing nominal wages doesn't necessarily mean stabilizing prices. Labor tax rate smoothing is less important than previously thought. The way nominal wage rigidity is modeled can significantly affect policy recommendations.