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

Adverse selection of wage cuts or Adverse selection in wages refers to the situation whereby there is adverserse selection in the labour market. Here the seller of labor is the worker, the buyer of labor is the employer.

It could occur where the worker or seller of labour has more information than the buyer, the employer, and thus tends to leave the organization when there is a wage cut because they know their productivity worth. It could also happen when the seller of labour has less information than the buyer and overestimates his worth.

fichoh fichoh · Answer 2 · 2020-03-23T15:54:14+01:00

Answer: Adverse selection of wage cuts.

Explanation: Business owners and shareholders are almost totally focused on business growth, constantly monitoring running cost against revenue which may require drastic action such as reduction in salary of employees in a bid to arrest poor business condition. In such situation, employees start to weigh their options usually in search of a better job or staying put. At this point the adverse selection of wage cuts argues that, employees evaluate their competence, technicalities of their job role or duty and demand. With employees who are competent and understand the high demand for their job role opting to walk away due to higher chances of getting an alternative while those employees who think otherwise due to low level of attractiveness associated with their position are likely to stay put for fear of being out of job.