978-0078029486 Chapter 2

Chapter 02 – The Psychology and Economics of Employee Benefits

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Chapter 02

The Psychology and Economics of Employee Benefits

1. Employee benefits act as a tool for recruiting and retaining desired employees for

companies. (How Employee Benefits Constitute Social Exchange)

2. Social exchange is one where the nature of exchange has been specified at the time of

employment. (How Employee Benefits Constitute Social Exchange)

3. Once the social exchange is set between employer and employee, it does not change

over time. (How Employee Benefits Constitute Social Exchange)

4. Employee benefits need to be considered as economic exchange between employer and

employee rather than social exchange relationship. (How Employee Benefits Constitute

Social Exchange)

5. Despite increasingly diverse workforce in the US workplace, traditional benefits

practices assuming similarity among workers can still work well for today’s

organizations. (Workforce Changes and the Employment Relationship)

6. Relational psychological contracts can often be understood with an example of an

independent contractor or consultant hired by a firm. (Psychological Contracts)

7. Long term relationship between employer and employee pertains to transactional

psychological contracts. (Psychological Contracts)

8. Job security, recognition, and support in exchange for commitment and loyalty to the

employer more pertain to relational psychological contracts. (Psychological Contracts)

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9. Employee benefits practices can fulfill either transactional or relational psychological

contracts. (Psychological Contracts)

10. Health insurance or other legally required benefits would form a part of employees’

transactional expectation. (Psychological Contracts)

11. Retirement plans is a good example of benefits that fulfill both transactional and

relational expectations. (Psychological Contracts)

12. Psychological contracts do not develop and change over time. (Psychological

Contracts)

13. Violations of psychological contracts are basically the same as unmet expectations.

(Psychological Contract Violation)

14. Violations of psychological contracts are likely to be more intense than unmet

expectations because of feelings of betrayal and loss of trust. (Psychological Contract

Violation)

15. Employer’s expectation of the employee is not as important as employee’s expectation

about the employer. (Employee Benefits as Constituting Psychological Contracts)

16. Tax incentives are the only reason employers offer benefits to employees. (Why Do

Employers Offer Benefits)

17. One reason for employer-provided health insurance is to avoid adverse selection. (Cost

Advantage)

18. As the size of the insured group increases, so does the difficulty for the insurance

companies to predict the total medical expenses of the group. (Cost Advantage)

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19. Economies of scale refers to the lower amount of co-pay required of employees in a

large company as opposed to those in a small company. (Cost Advantage)

20. Economies of scale refers to the lower amount of co-pay required of employees in a

large company as opposed to those in a small company. (Cost Advantage)

21. The degree to which employers will decrease their hiring, if the market compensation

level increases, can affect how much of a benefit’s increase cost will be passed on to the

employees. (Who Pays For Benefits?)

22. Offering some benefits in a compensation package can attract qualified, but undesirable

job applicants. (Recruiting Certain Types of Workers)

23. When health benefit costs rise for a single employer in a market, the employer will

likely be able to pass along the benefit costs to workers, even if the workers valuation of

the benefit has NOT changed. (Who Pays for Benefits?)

24. The IRS offers tax benefits to companies that offer retirement plans. (Tax Incentives)

25. According to insurance statistics, women have higher average medical expenses than

men. (Cost Advantage)

26. If health insurance premiums rise because of advances in medical care technology,

employees would probably perceive that the increase added value to their

insurance. (Cost Advantage)

27. Employees in a large company are less likely to be subject to medical underwriting than

those in a small company. (Cost Advantage)

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28. Most small group health insurance policies are based on experience ratings. (Cost

Advantage)

29. Even if increased health insurance costs are NOT accompanied by an increase in

employees’ valuation of the insurance, cash wages will probably be adjusted downward

anyway. (Who Pays for Benefits?)

30. One of the drawbacks of Medicare and Social Security insurance, is that neither

program can avoid adverse selection. (Cost Advantage)

31. Offering benefits to employees can be cost effective for employees, but NOT for

employers. (Cost Advantage)

32. According to insurance statistics, medical expenses run higher for minority groups than

whites. (Cost Advantage)

33. The 2009 average total medical expenditure was lowest for adults aged 18 to 44. (Cost

Advantage)

34. Medical expenses are higher for people with new medical histories. (Cost Advantage)

35. Experience rating is the process of gathering information about employees’ risk

profiles. (Cost Advantage)

36. Benefits administration costs are usually miniscule and not considered when measuring

economies of scale. (Cost Advantage)

37. Offering certain types of benefits in combination with reduced compensation is one way

of recruiting desirable workers. (Recruiting Certain Types of Workers)

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38. An insurance pool refers to all employees who fall into an insured category. (Cost

Advantage)

39. Individuals don’t know more about their health than insurance companies. (Cost

Advantage)

40. Large companies are more likely to be subject to medical underwriting because more

risk involved than smaller companies or individuals. (Cost Advantage)

41. In most cases employees do not give up anything to get benefits because they are

“free-add-ons” in a compensation package. (Who Pays for Benefits?)

42. The greater value employees place on a benefit, the larger reduction in cash wages they

will accept if the benefit is introduced into a compensation package. (Who Pays for

Benefits?)

43. If workers are willing to leave the labor market when compensation falls and employers

have relatively inflexible staffing needs, employees will tend to pay for benefit cost

increases. (Who Pays for Benefits?)

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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website,

in whole or part.

44. What are the two basic causes for psychological contract violations? (Psychological

Contract Violation)

45. Which of the following is not closely associated with the nature of transactional

psychological contracts? (Psychological Contracts)

46. Which of the following employee benefits is more relevant for relational psychological

contracts? (Psychological Contracts)

47. Being able to spread the administrative costs to larger groups of employees, to reduce

the health insurance cost per employee, is referred to as what? (Cost Advantage)

48. Which of the following employee benefit might fulfill both transactional and relational

expectations of employees? (Psychological Contracts)

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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website,

in whole or part.

59. Briefly discuss how workforce demographic changes can influence the employment

relationship. (Workforce Changes and the Employment Relationship)

60. Discuss what psychological contracts mean in employee benefit practices and how

psychological contract develop. (Psychological Contracts)

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distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website,

in whole or part.

61. Briefly discuss how employee benefits aid in recruiting certain types of

workers. (Recruiting Certain Types of Workers)