Examples of Optional Fringe Benefits - Essay Example

Chapter 7 Total compensation is the sum of wage earnings and fringe benefits. Fringe benefits are the combination of legally man d benefits and other optional benefits. Legally mandated benefits include social security and unemployment benefits. Examples of optional fringe benefits are medical insurance, private pensions, and paid vacations. According to the Bureau of Labor Statistics fringe benefits represent 30% of total compensation costs. Fringe benefits compensation costs vary depending on the business industry. The importance and growth of fringe benefits has increased a lot in comparison with the past. Back in 1929 only 3% of workers compensation was associated with fringe benefits. Fringe benefits are considered in-kind benefits because they take for of a specific service or good. In general fringe benefits provide tax benefits to the worker. Pensions for example are an asset that is not going to get tax until the future. The isoprofit curve indicates the various combinations of wages and fringe benefits providing a given profit. The optimal combination of wages and fringe benefit is achieved at the point where the isoprofit curve is tangent to the highest attainable indifference curve. A decrease in the price of fringe benefits due to tax advantages and scale economies fans the isoprofit curve outward. The use of fringe benefits also offers tax advantages to the employer. The collective purchase of fringe benefits is positively impacted by economies of scale. A good fringe benefit package will help reduce employee turnover. Employees can be considered agents, while the employers are the principals. An agent is a party that is hired to advance the interest of others. Principals are parties who hire other to help them accomplish their objectives. A principal agent problem occurs when agents pursue some of their own objectives that conflict in achieving the goals of the principal. Pay incentives plans are very popular in today’s business environment. Piece rates are compensation paid in proportion to the number of units of personal output. Commission or royalties pay the person a percentage of the sales total. Bonuses are extra pay received based on a factor such as the performance of the company. Team bonuses can lead to member of the team becoming free riders. Some employees will lean back and let others do all the work. Profit sharing is a pay system that allocates a specific portion of a firm’s profit to the employees. Equity compensation consist of paying the employee by given them stock’s of the company. In France 19% of the employees participate in profit sharing plans. An efficient wage is one that minimizes an employer’s wage cost per effective unit of labor. Two other efficiency wage theories are the nutritional and labor turnover models. Chapter 8 Equilibrium wage differentials do not elicit movement of labor from lower paying jobs to high paying jobs. Transitional wage differential promote worker mobility in order to achieve a reduction in wage discrepancies. Many wage differentials tend to persists over long periods of time. Norway has the highest production worker wages in the world with wages of $55.03 an hour. Jobs that have high risk of injury or death have a lower supply of labor available. They also have higher wage rates to compensate for the risk. Companies that pay low fringe benefits have higher wage differentials to compensate for the lack of benefit offered. There are major differences in the wages paid in different parts of the world. In general the wages paid in the in the United States are very good in comparison with the rest of the world. People with higher educational attainment expect to get paid more that high school graduates. If all professions paid the same there would be no incentive for workers to get educated. The difference in pay between skilled and unskilled workers is called skill differential. Becoming technologically savvy pays off in the job market. Workers that use computers at their jobs get paid 20% more than workers that do not use computers. Unionized workers in the United States have higher wages than non-unionized workers. Human capital heterogeneities produce wage differentials due to varying productivity of workers. Workers have different preferences concerning present versus future income and regarding non wage aspects of work. The employer’s isoprofit curve portrays the various combinations of wage rates and job amenities that yield a given level of output. Through the use of indifference curves the hedonic wage model shows the various combinations of wage rates and levels of a particular non-wage amenity that yield specific levels of total utility. Chapter 9 Four types of job mobility are: a) a job change, but no change in occupation, b) an occupational change, but no change in residence, c) a geographic move to a job in the same occupation, d) geographic migration accompanied by occupational change. Between 16 to 18% of Americans change residence each year. Net immigration into the United States is approximately 1 million per year. Switching to a higher paying job is a human capital investment due to the fact that it entails present sacrifices to obtain higher future earnings. Determinants of migration include age, family circumstances, education, distance, and unemployment. Higher educational attainment increases the probability of migration. People migrate in order to achieve personal gain. Economic efficiencies are obtained when a nation achieves the greatest possible real domestic output from its available land, labor, capital, and entrepreneurial resources. The migration of Mexican workers into the United States increases the productivity in America while it provides higher wages to the immigrant workers. Real negative externalities are effects of private actions spilling over to third parties creating economic inefficiencies. Pecuniary externalities are acts that redistribute income among individuals and groups. A third economic externality is gains to owners of capital. The owners obtain greater earnings by exploiting the workers. The lower wages paid in developing countries gives these nations a competitive advantage due to lower costs of production. The United States uses immigration quotas to limit the number of immigrants that become residents of the country. The majority of illegal immigrants coming to the United States are unskilled workers. The influx of illegal workers reduces the job opportunities of legal residents and it can depress the wage rates of a labor market. Chapter 10 The goal of a union is to increase the wages and employment of its members. Union membership varies by country. The country with the highest union participation is Sweden with 78%. The United States has a much lower 12% union participation rate. Blue collar workers are more unionized than white collar workers. Union participation varies by industry. Personal characteristics such as age, gender, and race influence union participation rates. Heavy industrialized states such as New York and California have more unionized workers per capital than other regions. The three major levels of union organization are: federation, national unions, and local unions. Bargaining structure is the scope of the employees and employers covered by a collective bargaining agreement. Unionism in the United States is on the decline. In the 1940’s 34% of workers belong to a union; this figure has decreased to 12%. The structural change hypothesis says that a variety of structural changes occurring in our economy and in the labor force have been unfavorable to the expansion of union membership. The managerial opposition hypothesis states that managerial opposition has been a deterrent to union membership. The substitution hypothesis is the notion that other institutions – employers and governments- have come to provide the services, benefits, and employment conditions that were historically available only through unionization. Unions have reacted to their declines through mergers and changes in union organization and negotiating strategies. Unions can increase the wage paid to their members by increasing the demand for labor, restricting the supply of labor, and bargaining for an above equilibrium wage. Four ways to increase the demand for labor are: a) increasing product demand, b) enhancing productivity, c) influencing the prices of related inputs, d) increase the number of employees. The supply of labor can be restricted by influencing nonwage income and by reducing the number of qualified suppliers of labor. Read More