Price controls, minimum wages, labor market regulations, and unions have all been mentioned as factors that impede market-clearing. In this case, if demand increases a little, you may not raise you price, and if demand decreases a little, you may not decrease your price. Numerous psychological studies indicate that most people have money illusion to some degree. There is also evidence that disgruntled workers' performance worsens. Wage cuts hurt morale.
Effort is partly about incentives and partly about trust.
The UC Berkeley pay cut. In particular, if the equilibrium real wage falls, adjustment will be more painful if nominal wages fall and less painful if the price level rises. Menu costs probably pretty minor. Prices do decline in many cases. Money illusion, in contrast, seems to be a major force.