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Chapter 19: Problem 1

In 2013, national income in the United States was \(\$ 14,542.4\) billion. In the same year, 137 million workers were employed, at an average wage, including benefits of \(\$ 64,667\) per worker per year. a. How much compensation of employees was paid in the United States in 2013 ? b. Analyze the factor distribution of income. What percentage of national income was received in the form of compensation to employees in \(2013 ?\) c. Suppose that a huge wave of corporate downsizing leads many terminated employees to open their own businesses. What is the effect on the factor distribution of income? d. Suppose the supply of labor rises due to an increase in the retirement age. What happens to the percentage of national income received in the form of compensation of employees?

Short Answer

Expert verified
In summary: a) In 2013, the total compensation of employees paid in the United States was approximately $8.859 trillion. b) Approximately 60.93% of the national income in 2013 was received in the form of compensation to employees. c) Corporate downsizing and terminated employees opening their own businesses can potentially shift the factor distribution of income, increasing the share of income going towards business owners and decreasing the share of income received as compensation of employees, depending on the success and characteristics of these new businesses. d) An increase in the retirement age, leading to a higher supply of labor, could have varying effects on the percentage of national income received in the form of compensation of employees, depending on the balance between wage pressures and economic growth as well as other factors like employment rates and income distribution across sectors.

Step by step solution

01

Compute Total Compensation of Employees

Multiply the number of employed workers (137 million) by the average wage (including benefits) per worker per year (\$64,667) to find the total compensation of employees paid in the United States in 2013: Total compensation = (137 * 10^6) * 64,667 = 8,859,379,000,000 #a. The total compensation of employees paid in the United States in 2013 is approximately \$8.859 trillion.
02

Find the Percentage of National Income received in the Form of Compensation of Employees

Divide the total compensation of employees (\$8.859 trillion) by the national income (\$14,542.4 billion) and multiply by 100 to find the percentage: Percentage = (8,859,379,000,000 / 14,542,400,000,000) * 100 = Approx. 60.93 #b. In 2013, approximately 60.93% of national income was received in the form of compensation to employees. #c. A wave of corporate downsizing that leads to terminated employees opening their own businesses could potentially cause a shift in the factor distribution of income. These self-employed individuals, now considered business owners, would receive income in the form of profits rather than as compensation of employees. As a result, there could be an increase in the share of income going toward business owners and a decrease in the share of income received as compensation of employees. However, these shifts would depend on how many terminated employees open successful businesses and how these new businesses compare to the pre-existing workforce in terms of compensation and profits. #d. If the supply of labor rises due to an increase in the retirement age, there could be several potential effects on the percentage of national income received in the form of compensation of employees. An increased labor supply could lead to a downward pressure on wages, which would decrease the share of national income received as compensation. Conversely, if this increase in labor supply is accompanied by an increase in productivity that leads to economic growth, the overall national income may rise and the share received as compensation of employees could remain steady or even increase. The actual outcome would depend on the balance between wage pressures and economic growth, as well as other factors such as employment rates and the distribution of income between different sectors of the economy.

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