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Workers are compensated by firms with “benefits” in addition to wages and salaries. The most prominent benefit offered by many firms is health insurance. Suppose that in 2000, workers at one steel plant were paid $45 per hour and in addition received health benefits at the rate of $9 per hour. Also suppose that by 2010 workers at that plant were paid $47.25 per hour but received $20.25 in health insurance benefits.

a. By what percentage did total compensation (wages plus benefits) change at this plant from 2000 to 2010?

Instructions: Round your answer to 2 decimal places.

Total compensation (Click to select)decreasedincreased by percent.

What was the approximate average annual percentage change in total compensation?

Instructions: Round your answer to 2 decimal places.

percent.

b. By what percentage did wages change at this plant from 2000 to 2010?

Instructions: Enter your answer as a whole number.

Wages (Click to select)decreasedincreased by percent.

What was the approximate average annual percentage change in wages?

Instructions: Round your answer to 1 decimal place.

percent.

c. If workers value a dollar of health benefits as much as they value a dollar of wages, by what total percentage will they feel that their incomes have risen over this time period?

Instructions: Round your answer to 2 decimal places.

percent.

What if they only consider wages when calculating their incomes?

Incomes go (Click to select)downup by percent.

d. Is it possible for workers to feel as though their wages are stagnating even if total compensation is rising?

(Click to select)YesNo.

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Related questions

Suppose that a car factory initially hires 1,200 workers at $50 per hour and that each worker works 40 hours per week. Then the factory unionizes, and the new union demands that wages be raised by 20 percent. The firm accedes to that request in collective bargaining negotiations but then decides to cut the factory’s labor force by 25 percent due to the higher labor costs.

Instructions: Enter your answers as whole numbers.

a. What is the new union wage? $.

How many workers does the factory employ after the agreement goes into effect? .

b. How much in total did the factory’s workers receive in wage payments each week before the agreement?

$.

How much do the factory’s remaining workers receive in wage payments each week after the agreement?

$.

c. Suppose that the workers who lose their jobs as a result of the agreement end up unemployed. By how much do the total wages received each week by the initial 1,200 workers (both those who continue to be employed at the factory and those who lose their jobs) change from before the agreement to after the agreement?

Total wages (Click to select)risefall by $.

d. If the workers who lose their jobs as a result of the agreement end up making $15 per hour at jobs where they work 40 hours per week, by how much do the total wages received each week by the initial 1,200 workers change from before the agreement to after the agreement?

Total wages (Click to select)risefall by $.

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

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