1. Jan Czyrmer, the employee benefits manager at Ludlow Enterprises, wants to restructure the leave policy for the company. He is concerned that employees abuse the sick leave policy, taking sick leave time for personal reasons not related to illness. He wants to abolish particular types of leave (such as sick leave, vacation leave, personal leave) and give employees a certain number of general leave days per year to use as they choose.

a. What advantages might Jan cite to convince upper management that consolidating leave time may be helpful for Ludlow Enterprises?

b. If upper management rejects Jans idea of a major restructuring of leave time, what can he do to prevent abuse of the current sick leave policy? What steps can be taken to reduce moral hazard within the traditional leave system?

2. Rosa Sanchez, single, age twenty-five, received two job offers after college graduation. Both were with organizations that she respected, and the nature of the work at each place sounded very interesting to her. One job was with a larger, well-established firm and offered $22,000 per year in salary plus noncontributory benefits worth $7,000 per year. The other job was with a small business and offered a salary of $30,000 per year without employer voluntary benefits (the employer is required to pay for social insurance programs). Rosas mother suggested that she make the choice between the two jobs based on which offered better total compensation.

a. What factors should Rosa consider in determining the better package? Which package do you think maximizes her total compensation?

b. Which employer is economically better off (all else being equal), the one offering salary plus benefits or the one offering salary only? Explain your answer.