LABOR ECONOMICS
8th Edition
ISBN: 9781260004724
Author: BORJAS
Publisher: RENT MCG
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Question
Chapter 11, Problem 9P
(a)
To determine
Identify the problem that a firm tries to solve by offering the given benefit.
(b)
To determine
Determine why the health insurance portion of the benefit is important in the U.S economy.
(c)
To determine
Identify the industry.
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The owners of a QPedix, a small manufacturing company, have hired a manager to run the company. The compensation of the new Vice President is a flat salary (currently set at $50,000) plus 75% of the first $150,000 profit, then 10% of profit over $150,000. Discuss how the annual compensation of the Vice president vary with the corresponding company’s annual profit—use a schedule (table) and/or graph. Further, discuss the alignment of the incentives of the new Vice president with the profitability goals of the owners and, if necessary, propose a contract that better aligns the incentives of the new Vice president with the profitability goals of the owners.
Many employers in the U.S. pay significant amounts towards their employees' health insurance premiums. If the benefit-cost per full-time employee rises (e.g. when the insurer raises premiums) and the employer does not want the total cost of the employees' compensation (wage + benefits) to rise, all of the following would represent valid options for the employer to consider, except
a. replacing some full-time employees with part-time workers.
b. prohibiting fulltime employees to work overtime and hire temporary part-time workers to work those extra hours instead (assuming overtime is paid at the same wage rate as regular work hours).
c. increasing full-time employee's contribution towards premiums; not changing wages.
d.laying off some of the full-time employees and instituting mandatory overtime for the remaining full-time employees (assuming overtime is paid at the same wage rate as regular work hours).
Consider Figure 9.1. Assume SFK and Timken merge to become the MVD Company with new cost reductions, indicated by MC1=AC1, which result from changes in work by MVD Company employees that lead to higher worker productivity. Compare to the original competitive equilibrium, the effect of MVD Company's formation on welfare now isA.) a gain of $5.50B.) a gain of $2.50C.) a loss of $5.50D.) no change .
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