South-Western College Publishing - Economics  

Fitness Fanatical Firms
Subject Capital Markets, Optimal Investment
Topic Production and Costs
Key Words Subsidy, Profitability, Cost, Productivity, Discounts
News Story More employers are offering fitness centers or a subsidy program. For example, Ralston Purina has an on-site fitness center, while Allied Signal subsidizes health club memberships. The advantages are that wellness programs attract potential employees and improve profitability. Workers variously report that their productivity rises and that they feel less stress. Injuries and sick days tend to decrease. Part of the cost is usually borne by the employee.

One challenge is that the healthiest employees are the ones to participate most. Therefore, companies are trying to market their programs to sedentary workers by offering special classes for infrequent exercisers, and buddies who have a similar level of fitness. They may also provide discounts to frequent participants.
(Updated August 12, 1998)

Questions
  1. When companies are considering investing in something, be it production equipment of fitness programs, they calculate the marginal return on the investment and compare it to the market rate of interest. The marginal rate of return is the marginal revenue productivity of the investment divided by the marginal expenditure on capital (the marginal resource cost).
    1. How do wellness programs boost marginal revenue product?
    2. What are the marginal resource costs?
  2. Does the marginal return on investment in wellness programs differ for healthy employees as compared with high-risk people? How? Why?
  3. Why do some companies invest in fitness centers while others simply give health memberships to their employees? Answer in terms of the calculation that business people undertake.
Source Stephanie Armour, "Fitness programs are working out," USA Today, June 17, 1998.

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