Wage reduction policies are less common than layoffs because
A) workers never prefer wage reduction policies.
B) workers always trust the firm to tell the truth.
C) of asymmetric information.
D) of adverse selection problems.

Question

Quizplus · Accepted Answer

Wage reduction policies are less common than layoffs because they are usually met with resistance from workers who may not understand the reasons for the reduction. Moreover, there is often asymmetric information between the firm and the employees, as workers may not have access to the same information on the firm's financial health or performance that management does. This can lead to mistrust and a perception that the firm is being unfair or dishonest when implementing wage cuts. In contrast, layoffs are more straightforward and do not require workers to take a pay cut, making them a more common strategy for firms to reduce costs in times of economic downturn.

Wage Reduction Policies Are Less Common Than Layoffs Because