Ch. 7: Defining Competitiveness - MGT 461

A company that offers many services for the improvement of its low-wage employees

A low-wage, high-services strategy

**_____ _____ refers to the pay relationships among organizations - an organization's pay relative to its competitors.

External Competitiveness

**Level of competition and degree of product demand

Product Market Factors

_____ _____ begins with the traditional alternatives of lead, meet, or lag; it then adds a second part, which is to offer employees choices within limits in the pay mix.

Shared Choice

Which of the following is NOT true of the relationship between employer size and its ability to pay? Talented individuals have a lower marginal value in a larger organization. Talented people can influence more people and decisions. Influence of talented people leads to more profits. Talented people prefer to work in larger organizations.

Talented individuals have a lower marginal value in a larger organization.

The assumption of the upward sloping supply curve that offers of higher pay will increase supply will most likely NOT hold when _____. absenteeism is high turnover is low unemployment is low unemployment is high

unemployment is low

**Identify an accurate statement about a reservation wage. - A job seeker may accept a job offer above or below his or her reservation wage level - A reservation wage is the sum of all bonuses offered - A reservation wage may be more than or less than the market wage - A job seeker will not take up a job offer that offers his or her reservation wage as an incentive.

- A reservation wage may be more than or less than the market wage

The dashboard form of reporting the mix of pay forms of a company focuses on _____. - contrasting each pay form with its reservation wage - the importance of internal competition - comparing each pay form to the market - the relative importance of each form within a single company

- comparing each pay form to the market

*According to the efficiency-wage theory, what do high wages need to do if they are to increase efficiency and reduce labor costs? - raise organizational pay level - boost worker effort and decrease shirking - lure higher-quality applicants - increase worker monitoring - decrease turnover - lower the need to supervise employees

- lower the need to supervise employees - boost worker effort and decrease shirking - decrease turnover - lure higher-quality applicants

According to the theory of human capital, the wages of new hires match the value of their _____. - compensating differential - potential productivity - reservation wage - marginal product

- marginal product

*?In the graph provided, what does point A refer to? - Company size - compensating differential - market rate - marginal revenue product

- marginal revenue product

**The most common pay policy is a(n) _____. - lead policy - lag policy - hybrid policy - match policy

- match policy

The most common competitive pay-level policy involves _____. - leading competitors' wage rate - maximizing competitors' wage rates - lagging competitors' wage rates - matching competitor's wage rates

- matching competitor's wage rates

In a study conducted to determine the effects of sorting and signaling strategies, it was determined that pay level held more significance for _____. - materialist than for the risk-averse - collectivists than for risk takers - people who wanted to merely show up than for people looking for performance-linked bonuses - people who are looking for stability than for people looking for more interesting projects and flexible schedules

- materialist than for the risk-averse

A company that ensures that its highly-paid employees maintain a balance between their work and their personal lives

A high-wage, high-service strategy

A company that outsources all of its work in order to compete by producing its goods and services for the least compensation possible

A low-wage, no-services strategy

Druk Inc. is a consulting firm with 10 employees. Each new client generates $10,000 in revenue. If the company hires another employee who brings in five new clients and all other factors of production are constant, which of the following statements is true? Druk will break even if it hires a twelfth employee for a wage of $50,000. Druk needs to pay $10,000 as wage to the eleventh employee to break even. Druk will break even if it hires a thirteenth employee for a wage of $10,000. Druk needs to pay $50,000 as wage to the eleventh employee to break even.

Druk needs to pay $50,000 as wage to the eleventh employee to break even.

**Nature of demand for employees and nature of supply of employees

Labor Market Factors

A company uses this for jobs that can easily be filled in the local labor market

Lag policy

A company uses this for jobs requiring skills that are critical to its success

Lead Policy

A company uses this for jobs that requires skills that are not very critical to its success

Match policy

Which of the following is an example of a quoted-price market? Streetcash, a website that allows buyers to negotiate product prices with the sellers Vidwom, a website that allows buyers to bid for items sold by other users Gramspot, a website where cars are auctioned by sellers for charity Nile, a website that allows sellers to sell their products for a fixed price

Nile, a website that allows sellers to sell their products for a fixed price

**Nature of the industry, company strategy and size, and characteristics of individual managers

Organization factors

Which of the following statements is true of pay level? Pay level is the same across all organizations for the same job. The higher the pay level relative to what competitors pay, the lower the relative costs to provide similar products or services. Pay level is directly proportional to labor costs. Pay level is independent of the number of employees in an organization.

Pay level is directly proportional to labor costs.

Companies with higher profits than competitors can share this success with employees by leading competitor's pay levels and/or through bonuses that are tied to profitability. Academics view this as _____. - marginal sharing - risk liability - stock sharing - rent sharing

Rent Sharing

Which of the following is NOT a reason a company might pay base wages above market? To increase employee productivity To increase turnover rates To increase wage satisfaction To attract more job applicants

To increase turnover rates

**Which of the following is a reason for differing pay rates in the labor market and is difficult to document due to the inability to accurately measure and control the factors that go into a net-advantage calculation? - compensating differentials - the market rate - going rates - marginal productivity and revenues

compensating differentials

Stores that fix the price of each item or ads that mention the starting wage of job opening are examples of ______, whereas organizations that permit haggling over the terms and conditions until a consensus is reached are examples of _____.

the quoted-price market; the bourse

The concept of upward sloping supply in theories of labor markets assumes that as wage rates increase, more people are willing to apply for a job position. However, offers of increased pay may not boost labor supply when _____. - unemployment rates are low - there are few jobs in the market - a country is going through economic recession - the market is saturated with job seekers

unemployment rates are low

What are the assumptions that theories of labor markets usually begin with? - People are homogenous and thus interchangeable - All costs associated with employment are reflected in pay rates - A single employer has no advantage if it pays above or below the market rate - employers always aim to maximize returns - employees need to be retained at all costs as they are irreplaceable - the markets faced by employers are essentially noncompetitive

- employers always aim to maximize returns - People are homogenous and thus interchangeable - All costs associated with employment are reflected in pay rates - A single employer has no advantage if it pays above or below the market rate

What are the observable results of increased wages? - greater pay satisfaction - greater attrition rates - greater employee attraction and retention - improved quality, effort, and performance - improved employer size and ability to pay

- greater pay satisfaction - greater employee attraction and retention - improved quality, effort, and performance

A study of graduating college students found they sought jobs with all of the following pay characteristics EXCEPT _____. - individual-based pay - variable pay - flexible benefits - job-based pay

- variable pay

When is paying employees above market and efficient strategy for an organization? - when the labor costs exceed the organization's returns - when the organization's revenues exceed the strategy's expenses - when a competitor has a lower pay level and exponentially higher returns - when a competitor with a lower pay level has greater reliability and higher morale

- when the organization's revenues exceed the strategy's expenses

Employers continue to hire until the marginal revenue of the last hire equals his or her wage rate. This is based on the first labor market theory assumption that: - markets are competitive - pay rates reflect all costs of employment - employers seek to maximize profits - workers are homogeneous and interchangeable

- employers seek to maximize profits

What are the effects of offering high wages in a lead pay-level policy? - reduced turnover and absenteeism - reduced employee attraction and retention - reduced vacancy rates and training time - reduced satisfaction with pay

- reduced turnover and absenteeism - reduced vacancy rates and training time

Wages tend to be the lowest in which of the following industries? - education and health care - technology-intensive industries - professional services - pharmaceuticals

- education and health care

In the short term, a company's factors of production other than its human resource pool are _____, which causes each new hire to have lower marginal productivity than the previous hire. - inaccessible - inalterable - indeterminable - inexhaustible

- inalterable

Employers in extremely competitive markets find it more difficult than other employers to _____. - pay their employees minimum wage - increase prices without loss of revenues - avoid the scrutiny of government regulators - create standar reservation wage

- increase prices without loss of revenues

Due to restrictions place by the product market on an employer's pay level, what strategies must an employer use to compensate for paying above the maximum? - allocating a larger share of total revenues to cover labor expenses - increasing the resources use for performance-linked incentives - ensuring that competitors reduce the prices of similar products - passing the higher pay level on to consumers by increasing prices

- passing the higher pay level on to consumers by increasing prices - allocating a larger share of total revenues to cover labor expenses

One of the ways in which employers make pay cuts in times of high unemployment is by requiring employees to _____. - take furloughs without pay - work overtime - increase contributions to 401k retirement plans - deliberately perform poorly

- take furloughs without pay

How do managers choose their relevant labor markets? - they consider the products, size and location of competitors - they evaluate the importance of a job to their organization's success - they evaluate the value of potential employees' self-investments - they examine the reservation wages set by their competitors - they look at the skills and knowledge required for a job

- they consider the products, size and location of competitors - they look at the skills and knowledge required for a job - they evaluate the importance of a job to their organization's success

Identify the characteristics of jobs that are thought to make them more susceptible to offshoring. - little need for worker interaction - little need for labor of any kind - continuously changing nature of work - Easy to routinize - little need for local insight on unique cultural factors - inputs/outputs easy to transmit electronically

- Easy to routinize - little need for worker interaction - little need for local insight on unique cultural factors - inputs/outputs easy to transmit electronically

Which combination may boost employee commitment and encourage teamwork, which may in turn improve productivity? - a pay-with-competition policy combined with a lack of offered bonuses - a lead pay-level policy combined with internal misalignment and murmuring - a low-wage, no-services policy combined with high risk to the company reputation - a lag pay-level policy combined with the promise of increased future returns

- a lag pay-level policy combined with the promise of increased future returns