Workers are compensated by firms with “benefits” in addition to wages and salaries. The most prominent...

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 $35 per hour and in addition received health benefits at the rate of $7 per hour. Also suppose that by 2010 workers at that plant were paid $36.75 per hour but received $31.5 in health insurance benefits.

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

total compensation increased or decreased(choose one) by _______ percent

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

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

wages increased or decresed (choose one) by ________ percent

What was the approximate average annual percentage change in wages?

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?

What if they only consider wages when calculating their incomes?

incomes increased or decreased (choose one) by _____ percent

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

Solutions

Expert Solution

(a) Total compensation in 2000 = $(35 + 7) =$ 42 .

Total compensation in 2010 = $(36.75 + 31.5) = $ 68.25

Total compensation rose from $42 in 2000 and $68.25 in 2010. This implies that total compensation increased by [(68.25 - 42)/42] 100 = 62.5%.

By dividing the number by 10 , we get the average annual percnetage growth in total compensation = (62.5/10)% = 6.25%.

(b) Wages went up by [(36.75 - 35) / 35] 100 = (1.75/ 35) 100 = 5% .

By dividing the number by 10 , we get the average annual percentage growth in wages = 5/10)% = 0.5 %.

(c) If workers value a dollar of helath benefits as much as they value a dollar of wages, then they feel that their incomes have risen by 62.5%.

If they exclude health benefits and focus only on wages, then they will feel that their incomes have risen by 5%.

(d) Yes, it is possible for workers to feel as though their wages are stagnating even if total compensation is rising , see part (c).

Rahul Sunny answered 2 years ago

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