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It is difficult to know when offering benefits will help a firm be more competitive in its market. This is because offering benefits both helps a firm and harms it.
Benefits can help a firm by attracting better applicants for jobs and making it more likely that good workers will stay. The best workers in the labor pool tend to be able to pick the jobs they want. They are superior to other workers and therefore get many offers. In order to attract such workers, and to keep them once they are hired, a firm needs to provide attractive compensation packages. This can include offering benefits.
However, benefits also cost money. Health insurance, for example, is very expensive in the US today. This means that offering benefits can lead to an increase in costs. Having higher costs can hurt a firm’s competitiveness.
Therefore, firms have to carefully calibrate how many benefits to offer to which workers. They have to be generous enough to attract good workers but not so generous as to be overpaying for workers who will not be productive enough to be worth the extra money.
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