Question

The Krisp Kracker company which makes unique kettle chips for restaurants, clubs, and events, has just lost a large client that made up 55% of its total revenue. Management finds it necessary to reduce staff or wages. This comes only three months after hiring 35 new people to support this big client. While there are rumors of wage reductions in the short run, the 100 employees who have been with the company for the past two years are grumbling that they are more valuable that the new hires which should be let go and the wages not reduced. The situation at Krisp Kracker illustrates which wage stickiness theory best?
A. Implicit contract theory

B. Insider-outsider model

C. Relative wage coordination argument

Answer 1

Answer:

B

Explanation:

The insider - outsider model explains the influence of the insiders on the firm;s behavior , wages negotiation and the national welfare.

In this context , the set of employees that have been working with the organization are referred to as the Insiders while the newly recruited are the outsiders.

This theory believes that the insiders are more relevant to the firm than the outsiders as they are more experienced in the system and the firm even rely on them to train the outsiders.