Reading Comprehension

Many managers are influenced by
dangerous myths about pay that lead
to counterproductive decisions about
Line how their companies compensate
(5) employees. One such myth is that
labor rates, the rate per hour paid to
workers, are identical with labor costs,
the money spent on labor in relation to
the productivity of the labor force.
(10) This myth leads to the assumption that
a company can simply lower its labor
costs by cutting wages. But labor
costs and labor rates are not in fact
the same: one company could pay
(15) its workers considerably more than
another and yet have lower labor
costs if that company's productivity
were higher due to the talent of its
workforce, the efficiency of its work
(20) processes, or other factors. The
confusion of costs with rates persists
partly because labor rates are
a convenient target for managers who
want to make an impact on their com-
(25) pany's budgets. Because labor rates
are highly visible, managers can easily
compare their company's rates with
those of competitors. Furthermore,
labor rates often appear to be a
(30) company's most malleable financial
variable: cutting wages appears an
easier way to control costs than such
options as reconfiguring work processes
or altering product design.
(35) The myth that labor rates and labor
costs are equivalent is supported by
business journalists, who frequently
confound the two. For example, prominent
business journals often remark on
(40) the "high" cost of German labor, citing
as evidence the average amount paid
to German workers. The myth is also
perpetuated by the compensationconsulting
industry, which has its own
(45) incentives to keep such myths alive.
First, although some of these consulting
firms have recently broadened
their practices beyond the area of
compensation, their mainstay con-
(50) tinues to be advising companies on
changing their compensation practices.
Suggesting that a company's
performance can be improved in
some other way than by altering its
(55) pay system may be empirically correct
but contrary to the consultants'
interests. Furthermore, changes
to the compensation system may
appear to be simpler to implement
(60) than changes to other aspects of an
organization, so managers are more
likely to find such advice from consultants
palatable. Finally, to the
extant that changes in compensation
(65) create new problems, the consultants
will continue to have work solving the
problems that result from their advice.

3. It can be inferred from the passage that the author would be most likely to agree with which of the following statements about compensation?

A. A company's labor costs are not affected by the efficiency of its work processes.
B. High labor rates are not necessarily inconsistent with the goals of companies that want to reduce costs
C. It is more difficult for managers to compare their companies' labor rates with those of competitors than to compare labor costs.
D. A company whose labor rates are high is unlikely to have lower labor costs than other companies.
E. Managers often use information about competitors' labor costs to calculate those companies' labor rates.

OA : B

Can anyone please explaing why B is the correct answer?

The answer is essentially a restatement of this sentence:

But labor costs and labor rates are not in fact the same: one company could pay its workers considerably more than another and yet have lower labor
costs if that company's productivity were higher due to the talent of its workforce, the efficiency of its work processes, or other factors

The author is saying that a company could have higher pay rates, but have lower costs.

DavidG@VeritasPrep wrote:The answer is essentially a restatement of this sentence:

But labor costs and labor rates are not in fact the same: one company could pay its workers considerably more than another and yet have lower labor
costs if that company's productivity were higher due to the talent of its workforce, the efficiency of its work processes, or other factors

The author is saying that a company could have higher pay rates, but have lower costs.

Hi David,

Thanks a lot for your reply. Now I am clear why B is the correct answer.

ceilidh.erickson wrote:It's also worth pointing out why the other answers were incorrect:

A. A company's labor costs are not affected by the efficiency of its work processes.
The passage says the opposite in line 19. Furthermore, an answer choice to an inference question that contains definitive language like "are not affected" is usually wrong.

C. It is more difficult for managers to compare their companies' labor rates with those of competitors than to compare labor costs.
The passage says the opposite in lines 25-28.

D. A company whose labor rates are high is unlikely to have lower labor costs than other companies.
The passage's main point is that labor rate and labor cost are different statistics; we can't necessarily compare companies with different labor rates.

E. Managers often use information about competitors' labor costs to calculate those companies' labor rates.
We're told that journalists and consultants do this, not managers. We have no reason to infer this.

Hi Ceilidh,

Thanks a lot for detalailed explanation. It is very much helpful