PrepTest 137, Section 2, Question 6
The profitability of a business is reduced by(49 more words not shown)
Which one of the following(8 more words not shown)
- ALarge income differences(11 more words not shown)
- BReductions in the(11 more words not shown)
- CBusiness firms that(12 more words not shown)
- DReducing the difference(17 more words not shown)
- EEmployees whose incomes(18 more words not shown)
Reading the argument
Does a large pay gap actually hurt employee morale?
That's the connection the author needs. We're told that anything undermining morale reduces profitability. For example, if forcing employees to come in at 5 a.m. hurt morale, the rule would tell us that this also hurts profitability. But we'd first need to establish the effect on morale.
The same is true of stock options. The argument says they widen the income gap between senior staff and employees on fixed salaries. It hasn't said that this gap undermines morale. Maybe the fixed-salary employees don't mind the difference. If so, the rule about morale gives us no reason to reject the policy.
What we’re looking for
The assumption question asks for the missing connection: large income differences tend to undermine morale. That brings the policy within the rule the author is using to criticize it.
Working the answers
- ACorrect
Now the pieces connect: stock options greatly widen the income gap, large income gaps tend to hurt morale, and harm to morale reduces profitability. Without the middle link, we know about a difference in pay but haven't established why the opening rule applies to it.
- B
Morale problems don't have to be the usual cause of declining profits. A company could usually lose money because of rising costs or weak demand, while a particular morale problem also reduces profitability. The argument needs morale to matter here, not to explain most cases of reduced profitability.
- C
This compares different firms. A very successful firm could pay senior staff with stock options, suffer some resulting harm to morale, and still be more profitable than its competitors. The argument is about a policy's effect on a company's profitability, not whether every company using it falls behind companies that don't.
- D
Reducing a pay gap doesn't have to increase profits every time. Other factors could overwhelm any benefit: sales might collapse, for example. The argument says a morale problem harms profitability; it doesn't need the much stronger claim that narrowing the gap invariably raises profits.
- E
This supplies a possible advantage of compensation that rises with profits: stronger incentives to work productively. That could favor stock options. It doesn't connect the larger income gap to the harm to morale that the argument depends on.
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