Suppose you were given a choice to select from a menu of items in your employee

Question

Suppose you were given a choice to select from a menu of items in your employee benefits package. The menu might include medical coverage ($1,500 deductable), life insurance equal to a year’s salary, vacation time based on length of employment with the company and retirement pay equal to 8 percent of income. Comment on how such a “flexible benefits package” would affect your preference between higher wages and more benefits. Use the theory of consumer behavior in your answer. Suppose you were given a choice to select from a menu of items in your employee benefits package. The menu might include medical coverage ($1,500 deductable), life insurance equal to a year’s salary, vacation time based on length of employment with the company and retirement pay equal to 8 percent of income. Comment on how such a “flexible benefits package” would affect your preference between higher wages and more benefits. Use the theory of consumer behavior in your answer.

Explanation / Answer

Choice between higher wages and lucrative benefits would involve on earner looks at present income and future benefits. If he gets fair incomes then he opt for more benefits and if he has sub- standard living style then he goes for higher salaries. Using consumer behavior theory employee choose between high wages and more benefits according to price an efforts need to work those hours.

If the employees get fair wages, he may select to opt for more benefits. And in packages of benefits he has control over the choice of flexible benefits. This will suggests the best option to him where his high wages will be equivalent to future utility from the other benefits.

He will choose the point where high wages utility = future benefits utility.

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