Question

• How do economic factors affect the total compensation and benefits packages of each job? Consider where we are in terms of an economic growth cycle (e.g., are we in a recession or boom-time economy?), the cost of living in the location of each job, and the competitiveness of each industry. Clearly explain! Thanks.

Answer 1

There are many factors that affect the total compensation and benefits package of each job. These include current economy health, inflation, cost if living, the industry and more. Lets see how.

First up is the economy. The health of the economy is a very important factor in judging the benefits of a job. For example, currently we are in a recession (the GDP growth is negative). This means that there are less jobs available and that salaries and compensations have gone down. So in the current environment, a job that is paying same as last year, when there was no recession, becomes much more attractive. So the benefits of this job are now much higher than what they were last year. In that sense, state of economy affects benefits of job immensely. Similarly, companies would be much more willing to pay better compensation and packages in an environment of boom than recession.

Now lets consider inflation. Inflation is the increase in prices each year. In inflation is very high, it reduces the benefits of a job if the salaries also do not grow in the same proportion. For example, if salary grows by only 2% but the prices have gone up by 10%, then the job is not as attractive now as it was last year. So, companies would want to compensate for inflation when its high and offer higher compensation too.

Another factor is cost if living. If we earn same amount of money in NY and Aramadillo, Texas- we are far better off in Aramadillo as the cost of living is much cheaper there. As Armadillo is cheaper, we can buy far more products and services in the same amount of money as compared to NY. Hence, cost of living affects our compensation and benefits package majorly. Of course, it goes without saying that there would be far more high paying jobs in NY than in Aramadillo, cause companies are trying to compensate for the high cost of living.

Then there is industry. A 100000 salary is not same in investment banking and construction labor industries. 100000 is very good salary for a construction labor, but its barely OK for an investment banker. So a compensation of 100000 would be very attractive for a construction labor but not for an investment banker. So here we can see that the industry has affected the benefits too. On the flip side, a company would lose people if it doesnt pay up to the standards and competitiveness of the industry. An investment bank wont get any talent if they offer 50000USD as the industry structure and competitiveness will make it infeasible.

So we can see that there are many many economic factors that affect the benefits and compensation package of a job.