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The following is part of a business plan being discussed at a board meeting of
the Perks Company.
“It is no longer cost-effective for the Perks Company to continue offering its
employees a generous package of benefits and incentives year after year. In periods
when national unemployment rates are low, Perks may need to offer such a package
in order to attract and keep good employees, but since national unemployment rates
are now high, Perks does not need to offer the same benefits and incentives. The
money thus saved could be better used to replace the existing plant machinery with
more technologically sophisticated equipment, or even to build an additional plant.”
Discuss how well reasoned... etc.
The author of Perks Company’s business plan recommends that funds currently spent on the employee benefits package be redirected
to either upgrade plant machinery or build an additional plant. The author reasons that offering employees a generous package of
benefits and incentives year after year is no longer cost-effective given current high unemployment rates, and that Perks can attract
and keep good employees without such benefits and incentives. While this argument has some merit, its line of reasoning requires close
To begin with, the author relies on the reasoning that it is unnecessary to pay relatively high wages during periods of high unemployment
because the market will supply many good employees at lower rates of pay. While this reasoning may be sound in a general sense, the
particular industry that Perks is involved in may not be representative of unemployment levels generally. It is possible that relatively few
unemployed people have the type of qualifications that match job openings at Perks, if this is the case, the claim that it is easier now to
attract good employees at lower wages is ill-founded.
Secondly, the argument relies on the assumption that the cost-effectiveness of a wage policy is determined solely by whatever wages a
market can currently bear. This assumption overlooks the peripheral costs of reducing or eliminating benefits. For example, employee
morale is likely to decline if Perks eliminates benefits; as a result, some employees could become less productive, and others might quit.
Even if Perks can readily replace those employees, training costs and lower productivity associated with high turnover may outweigh any
advantages of redirecting funds to plant construction. Moreover, because the recommended reduction in benefits is intended to fund the
retrofitting of an entire plant or the building of a new one, the reduction would presumably be a sizable one; consequently, the turnover
costs associated with the reduction might be very high indeed.
In conclusion, this argument is not convincing, since it unfairly assumes that a broad employment statistic applies to one specific
industry, and since it ignores the disadvantages of implementing the plan. Accordingly, I would suspend judgment about the
recommendation until the author shows that unemployment in Parks’ industry is high and until the author produces a thorough costbenefit
analysis of the proposed plan.