The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don't believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which theory best illustrate this wage stickiness scenario?

Question

Business

Adrien Zhang

22 June, 04:25

The Campus Collective company, which creates unique apps for colleges, has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages. The economy also appears to be headed toward a recession and gaining more clients will most likely be harder to accomplish. Because it is a smaller company everyone knows each other and knows there are tough choices ahead. Management brings up the idea of an across the board wage reduction so that no one be let go, but some employees don't believe that a wage cut will be equally applied to all. The employees are also not sure if other people working their same jobs in the economy are getting reduced wages. They start to argue against wage reduction and things get a bit heated. Which theory best illustrate this wage stickiness scenario?

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Answers (1)

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Clarence Rollins · Answer 1

Relative wage coordination argument

Explanation:

Relative wage coordination argument states that even though workers are willing to accept wage cuts due to economic hardships. Wide implementation of wage cuts is hard because workers believe that not everyone will experience wage cuts.

So they will will fight against implementation of wage cuts.

In this scenario Campus Collective company has recently lost three large university clients that made up 40% of its total revenue. This has hit the company hard and management finds it necessary to reduce staff or wages.

Although employees are aware of the hardship they still fight against management on wage cuts because employees are also not sure if other people working their same jobs in the economy are getting reduced wages.