Final answer:
Equity theory does suggest that underpaid employees will decrease their effort, which is true. Efficiency wage theory complements this by stating that higher pay can lead to greater productivity, showing both sides of how pay can impact employee performance. Therefore, the given statement is true.
Step-by-step explanation:
It is true that equity theory holds that employees who feel underpaid will decrease their level of effort and performance in response to feelings of inequity. When employees perceive an imbalance between their input and the rewards they receive compared to others, they might reduce their productivity as a form of protest or because of a lack of motivation.
Conversely, the efficiency wage theory suggests that paying employees more than the market rate leads to increased productivity as employees value their positions and are motivated to maintain them. Employers recognize the benefits of motivated employees and the cost savings from reduced turnover, which justifies paying above market wages.