Employee Benefits Discussion Questions

  1. Employees care about attributes of the job as well as about wages. Better working conditions (i.e. bigger office, nicer desk, cleaner shop) may compensate for a lower wage level. However, there is plentiful evidence showing that the employees with the highest wages enjoy better working conditions than their lower wage counterparts. Is this a contradiction?
  2. Benefits other than pay represent a growing fraction of compensation, currently about 25%. Why should a firm pay workers in benefits instead of cash?
  3. Suppose that garbage truck drivers sue the city, asking to be paid "comparable worth" for their job. In support of their claim, they present evidence that the typical worker in the economy finds this a very unattractive job, and would require substantial extra monetary compensation, all other characteristics of the job held constant. Is it correct to infer from this that garbage collectors should be paid very high salaries?
  4. Suppose that workers vary in terms of some characteristic (e.g., skill, diligence, etc.) that the firm values. Suppose further that they vary in terms of their taste for certain job characteristics (e.g., flex-time) in a way that is correlated with the skill the firm is interested in recruiting. Can you suggest any approaches the firm can take to improve the self-selection of job applicants?
  5. Your firm is having difficulty filling a job opening. Under what circumstances should it raise the salary offered? What other options does the firm have?
  6. Working conditions are identical among all widget manufacturing firms except for the level of noise. The firms that use LWM (Loud Widget Manufacturing) technology offer a noisy work environment, while the rest of widget producers offer no-noise work environment. The firms that use LWM technology offer 10% wage premium. This year your firm plans to adopt LWM technology. In order to compensate for noise, the firm will increase wages by 10%, once LWM is implemented.

    7. a. What would happen to turnover?

b. Should the firm increase wages up to the level where turnover remains at the historical level?

  1. The management of a mining company is considering buying a safety improving device that is expected to save a worker's life with probability 1/10 000. The device costs $10 per worker and lasts for four years. Should the firm buy the device?
  2. Some firms implicitly allow workers to use some amount of office supplies, phone calls, e-mail, etc. for personal use. This is a benefit. Under what circumstances would the firm want to offer this kind of benefit?
  3. After the Cold War the US military decided to "draw down" its force (downsize). How could the military strategically design its pension plans to encourage turnover? What employees would it want to encourage to retire, and why? How does this affect your design of the optimal pension plan?
  4. . Why do you think pensions are such an important form of benefit at most firms?
  5. . Why do you think firms have been offering more benefits to employees over time?
  6. . Luxurious Frames inc. is a producer of designer frames made of titanium and other advanced materials. These frames retail for about $500. Luxurious Frames manufactures 10 000 frames a year, total manufacturing costs are $2 500 000 (i.e. manufacturing cost is $250 per frame). The marginal cost of manufacturing a frame is $30. As a part of a benefit package the firm provides a pair of prescription glasses per year to each employee. It can either supply its workers with expensive frames manufactured by Luxurious Frames or it can supply its employees with mass produced frames that can be purchased at $50 a peace.

    7. a. What is a better option?

    b. Now suppose that mass produced frames are available at only $10 a pair. The firm can offer its worker only mass produced frames only designer frames or it can offer its employees a choice between mass produced frames and designer frames with a co-payment. Is offering workers a choice a good idea in this case? If so, what can you say about the optimal size of co-payment required for an upgrade to designer glasses? Discuss.