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 $20 per hour and in addition received health benefits at the rate of $4 per hour. Also suppose that by 2010 workers at that plant were paid $21 per hour but received $9 in health insurance benefits.

a. By what percentage did total compensation(wages plus benefits) change at this plant from 2000 to 2010? What was the approximate average annual percentage change in total compensation?

Solutions

Expert Solution

(a)

Total compensation = Wage + Health benefits

(i)

Total compensation, 2000 ($) = 20 + 4 = 24

Total compensation, 2010 ($) = 21 + 9 = 30

% Change in total compensation = ($30 / $24) - 1 = 1.25 - 1 = 0.25 = 25%

(ii)

If average annual growth rate be r, then

$24 x (1 + r)¹⁰ = $30

(1 + r)¹⁰ = $30 / $24 = 1.25

Taking 10th root on each side,

1 + r = 1.0226

r = 0.0226

r = 2.26%

Rahul Sunny answered 2 years ago

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