Question

The _________________ argument points out that if an employer reacts to poor business conditions by reducing pay for all workers, then the best workers, with the best employment alternatives at other firms, are the most likely to leave and the least-attractive workers, with fewer employment alternatives, are more likely to stay. question 1 options:

a.equilibrium wage theory
b.adverse selection of wage cuts
c.employer wage theory
d.efficiency wage theory

Answer 1

B. adverse selection of wage cuts

The adverse selection of wage cuts is one of the economic theory to explain why wage are less likely to decrease than increase.

Some of this theories revolve around laws and institution: for example, if the firm is paying only a minimum wage to its employees, it is illegal to reduce that wage.

There are other theories that try to identify the factors behind this pattern: one, the adverse selection of wage cuts argument, describe a situation in which if the employer cut all wages in order to meet the poor requests of the market, the employees that are most likely to stay are the less valuable one, as the most valuable will find a new job elsewhere.