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 of the following theories
best illustrate this wage stickiness scenario?
A. Implicit contract theory
B. Insider-outsider model
C. Relative wage coordination argument