Reading Comprehension

Many managers are influenced by dangerous myths
about pay that lead to counterproductive decisions
about how their companies compensate 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. 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 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 confusion of
costs with rates persists partly because labor rates are
a convenient target for managers who want to make
an impact on their company'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
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.
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 the "high" cost of
German labor, citing as evidence the average amount
paid to German workers. The myth is also perpetuated
by the compensation consulting industry, which has its
own 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 continues 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 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 than changes to other aspects of an
organization, so managers are more likely to find such
advice from consultants palatable. Finally, to the
extent that changes in compensation create new
problems, the consultants will continue to have work
solving the problems that result from their advice.
The passage suggests that the "myth" mentioned in
the highlighted text persists partly because
A. managers find it easier to compare their companies'
labor rates with those of competitors than to compare
labor costs
B. managers tend to assume that labor rates affect
their companies' budgets less than they actually do
C. managers tend to believe that labor rates can have
an impact on the efficiency of their companies' work
processes
D. the average amount paid to workers differs
significantly from one country to another
E. many companies fail to rely on compensation
consultants when making decisions about labor rates

1)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

2)The author of the passage suggests which of the
following about the advice that the consulting firms
discussed in the passage customarily give to
companies attempting to control costs?
A. It often fails to bring about the intended changes in
companies' compensation systems.
B. It has highly influenced views that predominate in
prominent business journals.
C. It tends to result in decreased labor rates but
increased labor costs.
D. It leads to changes in companies' compensation
practices that are less visible than changes to work
processes would be.
E. It might be different if the consulting firms were
less narrowly specialized.

OA - A