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SummaryCh06 - S u m m ar y Nonwage benefits such as paid...

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Summary Nonwage benefits, such as paid vacations, pen- sions, and other social insurance contributions, account for almost 40 percent of labour compensa- tion.While this is more complicated than the sim- ple “wage” that we use as the price of a unit of labour, the complexity of compensation may not affect the validity of the labour demand model.For example, if nonwage benefits are strictly propor- tional to the wage,the distinction is not important. However, nonwage benefits are often complex functions of the number of employees and hours worked. Many of these compensation costs are “quasi-fixed” in that they are incurred once a worker is hired (possibly recurring annually), but do not change with the number of hours worked. Other labour costs, such as hiring, training, and firing costs, are also “quasi-fixed.” The fact that some costs do not increase propor- tionately with hours worked drives a wedge between the marginal cost of hiring an additional
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