Workers are compensated by firms with “benefits” in addition to wages and salari

Question

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 $40 per hour and in addition received health benefits at the rate of $8 per hour. Also suppose that by 2010 workers at that plant were paid $42 per hour but received $18 in health insurance benefits.

a. By what percentage did total compensation (wages plus benefits) change at this plant from 2000 to 2010?

     Instructions: Round your answer to 2 decimal places.

    Total compensation (Click to select)increaseddecreased by  percent.

     What was the approximate average annual percentage change in total compensation?

     Instructions: Round your answer to 2 decimal places.

     percent.

b. By what percentage did wages change at this plant from 2000 to 2010?

     Instructions: Enter your answer as a whole number.

    Wages (Click to select)decreasedincreased by  percent.

     What was the approximate average annual percentage change in wages?

     Instructions: Round your answer to 1 decimal place.

     percent.

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?

     Instructions: Round your answer to 2 decimal places.

     percent.

     What if they only consider wages when calculating their incomes?

     Incomes go (Click to select)downup by  percent.

d. Is it possible for workers to feel as though their wages are stagnating even if total compensation is rising?

Explanation / Answer

(a) Total compensation rose from $(40+8)= $48 in 2000 to $(42+18)=$ 60 in 2010. This implies that total compensation increased by [(60-48)/48] 100 = 25%.

Because there is 10 years between 2000 and 2010. The approximate average annual percentage change in total compensation = 25%/10= 2.5% per year.

(b) Wages went up by $(42-40)/40 =$ 2/40 = 0.05= 5%.

Dividing the number by the number of years (10), so the appoximate averge annual percentage change in wages = 5%/10= 0.5%

(c) If workers value health benefits as much as wages, then they will feel that their incomes have risen by 25%. If they exclude health benefits and focus only on wages, they will feel that their incomes went up 5%.

(d) Yes, it is possible for workers to feel as though their wages are stagnating even if total compensation is rising.

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