Problem 1
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. LO17.1 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? b. By what percentage did wages change at this plant from 2000 to \(2010 ?\) 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? d. Is it possible for workers to feel as though their wages are stagnating even if total compensation is rising?
Problem 4
Suppose that low-skilled workers employed in clearing woodland can each clear one acre per month if each is equipped with a shovel, a machete, and a chainsaw. Clearing one acre brings in $$\$ 1,000$$ in revenue. Each worker's equipment costs the worker's employer $$\$ 150$$ per month to rent and each worker toils 40 hours per week for four weeks each month. LO17.6 a. What is the marginal revenue product of hiring one lowskilled worker to clear woodland for one month? b. How much revenue per hour does each worker bring in? c. If the minimum wage were $$\$ 6.20$$, would the revenue per hour in part \(b\) exceed the minimum wage? If so, by how much per hour? d. Now consider the employer's total costs. These include the equipment costs as well as a normal profit of $$\$ 50$$ per acre. If the firm pays workers the minimum wage of $$\$ 6.20$$ per hour, what will the firm's economic profit or loss be per acre? e. At what value would the minimum wage have to be set so that the firm would make zero economic profit from employing an additional low-skilled worker to clear woodland?
Problem 5
Suppose that a car dealership wishes to see if efficiency wages will help improve its salespeople's productivity. Currently, each salesperson sells an average of one car per day while being paid $$\$ 20$$ per hour for an eight- hour day. \(L O 17.8\) a. What is the current labor cost per car sold? b. Suppose that when the dealer raises the price of labor to $$\$ 30$$ per hour the average number of cars sold by a salesperson increases to two per day. What is now the labor cost per car sold? By how much is it higher or lower than it was before? Has the efficiency of labor expenditures by the firm (cars sold per dollar of wages paid to salespeople) increased or decreased? c. Suppose that if the wage is raised a second time to $$\$ 40$$ per hour the number of cars sold rises to an average of 2.5 per day. What is now the labor cost per car sold? d. If the firm's goal is to maximize the efficiency of its labor expenditures, which of the three hourly salary rates should it use: $$\$ 20$$ per hour, $$\$ 30$$ per hour, or $$\$ 40$$ per hour? e. By contrast, which salary maximizes the productivity of the car dealer's workers (cars sold per worker per day)?
