1. “Total compensation” includes:
a. Wages and salaries and all fringe benefits
b. Wages and salaries and public (legally mandated) fringe benefits only
c. Wages and salaries and private (nonmandatory) fringe benefits only
d. Wages and salaries and all fringe benefits net of all personal taxes
2. Fringe benefits currently account for approximately what percentage of total compensation?
a. 5% – 10%
c. 25% – 30%
b. 15% – 20%
d. 35% – 40%
3. As a percentage of benefits, the largest share goes to:
a. retirement and savings
c. paid leave
b. insurance
d. legally required benefits
4. The proportion of total compensation paid out as fringe benefits tends to be larger in:
a. high-paid industries compared to low-paid industries
b. service industries compared to manufacturing industries
c. white-collar occupations compared to blue-collar occupations
d. retail trade compared to transportation and public utilities
5. The share of fringe benefits in total employee compensation:
a. grew steadily in the 1960s and 1970s but has fallen since 1980
b. was unchanged in the 1960s and 1970s and has fallen since 1980
c. shrank in the 1960s and 1970s and has remained constant since then
d. grew steadily from 1960 through the mid-1990s
6. Which one of the following is not a valid explanation for why workers may prefer an extra dollar’s worth of fringe benefits to an extra dollar’s worth of cash?
a. workers may prefer to bind themselves against their own tendencies toward immediate gratification
b. certain fringe benefits effectively trade current taxes for future taxes
c. people generally prefer in-kind benefits to cash
d. certain fringe benefits are untaxed
7. Because there is a _______ marginal rate of substitution of fringe benefits for wages, a worker’s wage-fringe indifference curves are typically _______:
a. diminishing; convex to the origin
b. constant; straight lines
c. diminishing; concave to the origin
d. negative; straight lines
8. The slope of a wage-fringe indifference curve reflects:
a. the overall utility level of a person
b. a worker’s willingness to give up an extra dollar of wages in exchange for an extra dollar of fringe benefits
c. the firm’s cost of paying an extra dollar of compensation as wages rather than fringe benefits
d. an increasing marginal rate of substitution of fringe benefits for cash 2
9. An individual wage-fringe isoprofit line shows:
a. combinations of wages and fringe benefits that result in constant dollar values of total compensation
b. combinations of wages and fringe benefits that result in the same profit to the firm
c. the greatest possible profit attainable from a given level of fringe benefits
d. the greatest possible profit attainable from a given level of wages
10. The slope of a wage-fringe isoprofit curve reflects:
a. the overall profitability of the firm
b. a worker’s willingness to give up an extra dollar of wages in exchange for an extra dollar of fringe benefits
c. the relative “price” of fringe benefits compared to wages
d. an increasing marginal rate of substitution of fringe benefits for cash
11. The firm’s wage-fringe isoprofit curve typically has a slope less than 1 (absolute value) because:
a. fringe benefits confer tax advantages on workers
b. on average, it costs firms more to purchase fringe benefits than workers
c. the composition of fringe benefits may increase worker productivity
d. increasing the proportion of compensation received as fringe benefits reduces a firm’s profit level
12. If a firm can offer fringe benefits worth more than one dollar for a one dollar reduction in wages:
a. the wage-fringe isoprofit line will be upward-sloping
b. the wage-fringe isoprofit line will have a slope less than one in absolute value
c. the marginal rate of substitution between wages and fringe benefits will be greater than one at the wage-fringe optimum
d. as a proportion of total compensation, fringe benefits will likely exceed one half
13. The employer’s share of the Social Security and Medicare components of the payroll tax has increased, from 6.13% in 1980 to its current rate of 7.65%. Because employers pay no payroll tax on many fringe benefits, this change in tax rates has effectively:
a. reduced the “price” of fringe benefits, increasing the slope of the wage-fringe isoprofit line
b. increased the “price” of fringe benefits, increasing the slope of the wage-fringe isoprofit line
c. reduced the “price” of fringe benefits, reducing the slope of the wage-fringe isoprofit line
d. increased the “price” of fringe benefits, reducing the slope of the wage-fringe isoprofit line
14. The trend of fringe benefits as a percentage of total compensation can be partially explained by the fact that:
a. tax reform has rendered many types of fringe benefits fully taxable
b. “in-kind” benefits restrict workers’ consumption choices
c. the firm may be able to purchase fringe benefits more cheaply than workers
d. many types of fringe benefits are income inelastic
15. Fringe benefits will tend to be a greater proportion of total compensation, the:
a. more income elastic are fringe benefits
b. more they increase worker turnover
c. lower the employer’s share of the Social Security tax
d. less there are economies of scale in purchasing fringe benefits 3
16. Which of the following is not a cause of fringe benefit growth?
a. Tax advantages to the employer
b. Efficiency considerations
c. Economies of scale
d. Fringe benefits are income inelastic
