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COSTS:
APPLICATION TO FRINGE
BENEFITS
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INVESTMENT PROPERTIES OF
FRINGE BENEFITS
Definition
of Fringe Benefits:
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Brief History:
1910-20: WC laws
1935: Soc. Sec.
1950s: Pensions
1960s: Health ins.
1980s: IRAs, savings
plans, annuities
1990s: continued
trends of 1980s,
family policies
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Who
gets benefits
2. Deferred Compensation
3. Misc. Perks
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Wages vs non-wage
comp.
Differing attractiveness:
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Wages
Benefits
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Wages
B
Prefers
Wages
Prefers
Benefits
Benefits
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CONSTRAINT ON TOTAL
COMPENSATION: EMPLOYER ISOPROFIT
CURVE
Basic
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Wages
Benefits
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Isoprofit
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Wages
Benefits
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JOINT DETERMINATION OF
WAGES & BENEFITS
Employees
indifferent: Workers
effectively pay for own benefits in
form of foregone wages
Employer
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Plans
Insurance Plans
Coverage
Employee Contribution
Defined Benefit versus Defined
Contribution
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Benefit
Define
Contribution
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side:
Pluses:
predictable costs,
easy admin; lower
costs; shift risk.
Minus:
Difficult to
manipulate
retirement age
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Employee
side
Pluses:
Rapid vesting,
portable
Control
Minuses:
Risk of insufficient
savings
Risk of low ROI
Defined
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EMPLOYER PERSPECTIVE:
HOURS V. EMPLOYEES
Staffing
Decision
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RESULTING LOGIC
Increase
in MCM
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Public Goods
Consumers and
producers do not
meet at an exchange
Difficult to make
excludable
Ownership not
necessarily
discernable
Need
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Public Goods
Clean Environment
National Defense
Roads, street signs
Goods
Goods
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EXAMPLE 1 OF FIXED VS
VARIABLE
Choice
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EXAMPLE 2 OF FIXED VS
VARIABLE
Choice
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The
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Benefit
Defined
Contribution:
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