Final answer:
Employees may depart from a company which provides just wages and benefits because the most talented individuals often have better job options available. When firms reduce wages across-the-board, adverse selection can occur, leading these top performers to leave. An implicit contract between employers and employees also establishes an expectation of wage stability that, if broken, can lead employees to feel betrayed and consider leaving.
Step-by-step explanation:
Employees may leave a company that only offers wage and benefits for a variety of reasons. The adverse selection of wage cuts argument explains that if wages are reduced due to poor business conditions, the most skilled employees, who have better job prospects elsewhere, are more likely to leave. On the other hand, employees with fewer alternative job options are likely to stay, potentially lowering the overall talent pool within the company. This phenomenon might compel firms to opt for worker selection processes such as layoffs, rather than imposing across-the-board wage cuts. Additionally, there exists an implicit contract between employers and employees, serving as a form of insurance wherein employees expect stability in their wages, even during economic downturns, in exchange for not anticipating huge pay raises during favorable economic times.