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Consumer theory and benefit packages

Increasingly, employees are being allowed to choose benefit packages from a menu of items. For instance, workers may be given a package of benefits that includes basic and optional items. Basics might include modest medical coverage, life insurance equal to a year's salary, vacation time based on length of service, and some retirement pay. But then employees can use credits to choose among such additional benefits as full medical coverage, dental and eye care, more vacation time, additional disability income, and higher company payments to the retirement fund.

Using the theory of consumer behavior, how do you think flexible benefit packages would affect an employee's preference between higher wages and more benefits?

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Consumer theory describes how consumers seek to maximize their utility in selecting a variety of different goods. Consumers value different goods at different levels, and so by offering employees a variety of ways to be compensated, employers can retain and attract more employees. Most employees will in general value certain benefits more ...

Solution Summary

Benefit packages and maximization of utility by employees.