Each of the explanations has been given by economists to explain why wages might be "sticky downward" please match each term with the appropriate explanation.
1. the belief that employees who earn more will be more productive. employers who subscribe to this concept believe that employees will have a greater interest in remaining at their current jobs if their wages are higher, so wage is used as a mechanism to reduce turnover and increase the productivity of employees.
2. An unofficial agreement between employers and their workers. employers will try to not reduce wages during hard economic times, and workers agree to not expect huge salary increases when the economy or business is doing well.
3. the idea that cutting wages for workers who are already part of the organization is counterproductive because they are needed to help the business run smoothly.
4. most workers are willing to accept a wage decrease as long as all other people also experience the same kind of decrease, but will strongly resist wage cuts otherwise.
5. firms often decide which employees to fire or lay off in order to keep the best workers rather than implement an across-the-board wage cut that would likely drive away the most valuable employees.
Answer Bank
-Adverse selection of wage cuts
-relative wage coordination
-insider-outsider model
-implicit contract
-efficiency wage theory