South-Western College Publishing - Economics  
Foreign Fears of Ford Flushing Fitness Facilities
Subject Non-pecuniary Advantages
Topic Labor Markets
Key Words Workers, Absenteeism, Taxes, Pay, Benefits, Job Insecurity
News Story

Ford has just bought the car division of the Swedish auto producer, Volvo. Workers at Volvo are concerned because they fear that they could lose their health facilities - a gym, an olympic pool, badminton and tennis courts, an outside track, a sauna, and tanning beds. Currently, Volvo pays over $600,000 each year to support the center, while the employees who use it pay $1.50 a day.

Ford workers in the U.S. generally have access to fitness centers and weight-reduction programs free of charge, but no exotic facilities such as those in Gothenburg. At Volvo, management and the union argue that absenteeism is lower partly due to the facilities. They also face higher taxes and much lower pay than in the U.S., and-in common with other Swedish companies-offer generous non-wage benefits.

Volvo workers are also worried at the prospect of Ford requiring three shifts a day instead of two, reduced family time, and job insecurity.

(Updated April 1, 1999)

Questions
1. In Sweden, firms generally give workers high non-wage rewards.
  a)Draw a labor market diagram for Swedish manufacturing workers. Mark the equilibrium wage and employment level.
  b)Depict what happens when non-pecuniary (non-wage) benefits, like fitness facilities, are provided. How do employers benefit?
2. It is argued that workers are absent less and are more productive due to the fitness facilities.
  a)Draw a price-quantity diagram of the market for cars. Show the equilibrium price and quantity.
  b)How do the effects of the fitness centers influence the market for cars? Illustrate on your diagram.
  c)How do producers benefit?
3. Based on your analysis in the first questions, should Ford reduce its spending on the fitness center at Volvo? Explain your answer.
Source Amar Latour, "Detroit Meets a 'Worker Paradise'", The Wall Street Journal, March 3, 1999.

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