Half of Metroburg's operating budget comes from a payroll tax of 2 per

A: No idea about revenue in the stem (Incorrect)
B: There could be increase or decrease in the unemployment rate since we don't know if the private firm employees earn higher or lower than the average salary (Incorrect)
C: Out of Scope. Since we don't know if the private firm has relocated to save taxes paid. (Incorrect)
D: same as A (Incorrect)
E: Private company comprising of 1% of total strength has been relocated to another city outside. Presuming that Metroburg has public and private employees, Since the private-sector employees have relocated, the number of employees within Metroburg has now reduced, thus increasing number of public-sector employees. This wouldn't happen if the relocation caused reduction of a large number of jobs in public sector.

Answer: E

I was not able to eliminate option B since it is saying that all the employees of the private sector giant will be able to work in the new location of the company. The company is not firing any employee for them to be unemployed.
So, the unemployment rate will remain the same as it was before the company's relocation.

Hi,
Option B says "unemployment rate among city residents". So, if 1% of salaried people are moving out of the city, then unemployment rate will go up among the rest of the city residents.

B) Although the company's relocation will have a negative effect on the city's tax revenue, the company's departure will not lead to any increase in the unemployment rate among city residents.

F1:Half of the OB of M comes from payroll tax of 2% of the salaries paid to the employees.
F2: Recently a private company decided to shift outside the city M.
Total no of employees in the private company = 1% of total employees in M.

A) Unless other employers add a substantial number of jobs in Metroburg,
the company's relocation is likely to result in a 1 percent reduction in the revenue for the city's operating budget.
We don't know the total no of employees in M, neither do we know that how much each employee earn in M.
so we can't say anything on the % reduction in the operating budget.

Suppose there are 1000 employees in M and each is earning 10000 usd.
Payroll tax / employee = 200
=> Revenue by payroll tax = 200000<---- This is half of total operating budget
=> Total operating budget = 400000.

Now, 1% (10 people) left M. (Relocated)
=>Reduction in revenue = 2000 (200*10)

Loss% = (2000/400000)*100= 0.5%
So even if all employees were getting equal pay, the % reduction was likely to be .5% not 1%.

B) Although the company's relocation will have a negative effect on the city's tax revenue, the company's departure will not lead to any increase in the unemployment rate among city residents.
Can't infer anything about unemployement rate in M from the given facts.

C) One of the benefits that the company will realize from its relocation is a reduction in the taxes paid by itself and its employees.
We don't know if the company is paying any taxes outside M. May be they are paying more taxes outside M.

D) Revenue from the payroll tax will decline by 1 percent if there is no increase in jobs within the city to compensate, fully or partially, for the company's departure.
Similar to the reasoning given for option A. We can't say that decline will be of 1% for sure.

E) The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector, unless it results in a contraction of the public-sector payroll.

Correct.
As per the sample taken in A, Let's say there were only 10 people out of 1000 in private sector and they all left M.
=> 990 employees remained in M and they all were working in Pubic sector.
=> Even though the no of public sector employees remained same, the proportion of public sector employees increased from 99% to 100%.
=> The proportion of public sector jobs was increased.

We can take any sample and any ratio of Private/Public jobs, if private jobs got reduced then the probability of finding a public job is increased.
This is true if the reduction of 10 employees is not affecting the payroll tax of public sector employees.
If reduction of 10 employees is somehow increasing the payroll tax of public sector employees then it's likely that there may be a reduction in public sector jobs.
Hence this is true.

OK this is a classic trap choice question. Let's break it down with literal reading

TARGET: conclusion>>>inference from given info.

Errors marked in red in question

A)MATH:Company=> > 1% of no. of employees; Revenue from employees: 50% of budget. Logically revenue from these employees will be 1% of 50% budget that is less than 1%
B)"unemployment rate among city residents." can't be decided as we don't know if there are any job increase or not

C)Again there is no mention that outskirts have less tax though this can be logically assumed we should conclude info only from given info. Only we have to infer from passage data. NO PERSONAL OPINIONS.

D)Though this might seem logical there's a trap: POPULATION>>>1% but we don't know whether their salary can constitute enough to 1% of revenue. May be they have low salaries and thus may even have less than 1% of revenue OR the reverse of this High revenue from high salaries >1%.


E)Hmm.. may seem irrelevant at 1st because there's no mention of public sector but
logically: if private population decreases>> proportion of public sector to whole will definitely increase. THUS IS OUR ANSWER


TAKE AWAY:Check twice before marking your choice . Trust me it helps a lot.
HOPE THIS HELPS

THANKS.

GMATNinja



Answer choice B says that company's departure will not lead to any increase in unemployment rate. This is right because all of their employees will be employed in the new location? Of course there could be other reasons behind the unemployment rate but this company departure will not lead to that increase.

Can you please explain why B is incorrect?

GMATNINJA,EGMAT

Please explain every option thoroughly

i couldnot understand the stimulus and options well

Hi Praveena

Let me try to address your query. Analyzing the stimulus, we find the following facts laid out:

i) People who work in the city of Metroburg are levied a tax of 2% on the salaries paid to them.
ii) This tax revenue forms half of Metroburg's operating budget.
iii) A private sector employer, who currently has its office within the city, will be relocating its office just outside the city.
iv) The number of employees that will hence be shifting from inside the city to outside form 1% of all people currently employed in Metroburg/

With these facts, we are asked to arrive at a suitable conclusion/inference. Let us analyze the options:

A) Unless other employers add a substantial number of jobs in Metroburg, the company's relocation is likely to result in a 1 percent reduction in the revenue for the city's operating budget. While 1% of the number of people currently employed in Metroburg will be moving outside the city, the city's revenue is not basis the number of employees but on the salaries earned by them. Therefore, we cannot be certain that the reduction in the city's revenue will also be exactly 1%. Eliminate.

B) Although the company's relocation will have a negative effect on the city's tax revenue, the company's departure will not lead to any increase in the unemployment rate among city residents. The stimulus does not give us any information on the factors affecting unemployment (or employment) within Metroburg. Therefore, we cannot arrive at any conclusion about the same. Eliminate.

C) One of the benefits that the company will realize from its relocation is a reduction in the taxes paid by itself and its employees. From the stimulus, we only know that moving outside the city limits will help the employees save on the 2% payroll tax that they currently pay to the city of Metroburg. We do not know if the company itself have any tax savings. Wliminate.

D) Revenue from the payroll tax will decline by 1 percent if there is no increase in jobs within the city to compensate, fully or partially, for the company's departure. Same problem as in option (A). Eliminate.

E) The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector, unless it results in a contraction of the public-sector payroll. Correct. Since a large private sector employer is relocating outside the city, the proportion of jobs in the public sector in Metroburg will increase. We can argue that contraction of public sector payroll is not the only way this can be prevented - other private sector company/ies increasing their workforce within Metroburg could also maintain the current ratio. However, The facts presented in the option as such as supported by the stimulus and this is the best among the options provided.

Hope this helps.

I rejected E because i was trying to find out a link between the relocation and the impact on tax revenue..
Does this imply that for inference questions,it's not necessary to choose the answers which link the premise and the conclusion?

To address your question, the link between tax revenue and the location of workers is implied in the first sentence of the passage:


For every person who works in Metroburg, Metroburg receives 2% of that person's salary in the form of a payroll tax.
Consequently, if that person ceases to work in Metroburg, then Metroburg's payroll tax revenue declines.

All that said, choice (E) does not ever mention tax revenue, so let's take a closer look at the precise wording of the choice:


(E) says that the company's relocation will tend to increase the proportion of public-sector jobs in Metroburg, unless that same relocation also results in a contraction of the public-sector payroll.

We know that the company is "one of Metroburg's largest private-sector employers." It logically follows that if one of Metroburg's largest private-sector employers relocates all of its employees to a location outside of Metroburg, then the result will tend to be a lower proportion of private-sector jobs (and a higher proportion of public-sector jobs) in Metroburg)...

...unless that same move results in a contraction of the public-sector payroll.

This second part of choice (E) simply says that we won't see a tendency towards increase in the proportion of public-sector jobs if there's an accompanying contraction of public-sector payroll. In other words, a contraction may reduce the tendency of an increase. We can't tell from the passage whether a contraction in public-sector payroll is likely to happen or how it could happen, but we don't need to know that to accept the logic of this statement.

This is why choice (E) can be more properly be concluded than any other choice available.

I hope that helps!

Half of Metroburg's operating budget comes from a payroll tax of 2 percent on salaries paid to people who work in the city. Recently a financial services company, one of Metroburg's largest private-sector employers, announced that it will be relocating just outside the city. All the company's employees, amounting to 1 percent of all people now employed in Metroburg, will be employed at the new location.

From the information given, which of the following can most properly be concluded?


A) Unless other employers add a substantial number of jobs in Metroburg, the company's relocation is likely to result in a 1 percent reduction in the revenue for the city's operating budget. - For 1 percent reduction in the revenue for the city's operating budget, we have to know for sure that the total revenue contributed by the company is 2% of the overall payroll taxes as half of metroburg's operating budget comes from payroll taxes.

B) Although the company's relocation will have a negative effect on the city's tax revenue, the company's departure will not lead to any increase in the unemployment rate among city residents. - the unemployment can be of the companies dependent on the location of the companies such as restaurants or other vendors.

C) One of the benefits that the company will realize from its relocation is a reduction in the taxes paid by itself and its employees. - We dont know if the city the company will relocate to will ask for the payroll taxes or not.

D) Revenue from the payroll tax will decline by 1 percent if there is no increase in jobs within the city to compensate, fully or partially, for the company's departure. - Same reasoning as A.

E) The company's relocation will tend to increase the proportion of jobs in Metroburg that are in the public sector, unless it results in a contraction of the public-sector payroll. This is correct as the proportion of jobs will increase if this happens.


CR08540.02

For B, since the company will take its workforce with itself to the outer part of the city, can't we conclude that the unemployment won't increase because those people would still be employed ?

You're right that all the employees of the financial services company will still be employed and that this won't raise unemployment. But there are other nearby businesses that will also be affected by the move. There might be coffee shops and restaurants where employees of the financial services company regularly dine. Other businesses, like office supply stores and custodial services, may provide goods and services to the financial services company. When the financial services company moves, these other companies will have less business and may have to lay off employees.

So even though all the employees of the financial services company will still have jobs, other people in the city may lose their jobs, which would cause the unemployment rate to go up.

We also discussed why (B) is incorrect here if you want to read more.

I hope that helps!

This seems to be a pretty ridiculous question. How can we assume there even IS a public sector in the city, as there is no mention of one in what we are given.

E goes out the window quick if you make the assumption that there is no public sector in the city, which is understandable since it isn't referred to.

The public sector is just the part of the economy that is controlled by the government. There are a couple reasons that it is reasonable to conclude that there is a public sector in Metroburg, even though it’s not explicitly mentioned in the passage. First, the fact that Metroburg even has an operating budget seems to indicate that the city employs AT LEAST some people. Otherwise, who would manage the operating budget and what is the operating budget going towards?

Next, it’s hard to imagine any city without a public sector. Presumably, the city has some form of government, water, and sewage, all of which require employees. So, it’s totally reasonable to assume that Metroburg, or any other city for that matter, has a public sector.

I hope that helps!

GMATNinja
Similar to the reasoning for option B, we can say that because the firm shifted outside the city, it is possible to lose jobs in the public sector which were depended on the private firm. So how can we say that the proportion of public sector jobs increased?

Let's say
Before - >
Private - 50 jobs
Public - 50 jobs
Proportion of public - 50/100 - 50%

After ->
Private - 49 jobs (since one firm went out of city)
Public - 40 jobs (10 lost jobs which were depended on private bank)
Proportion of public - 40/89 - 44% which has decreased and not increased.

muralis18

There is a key difference between B and E. B is absolute: it is saying that the departure will not lead to any increase in unemployment. E, meanwhile, is conditional: if the departure doesn't cause a drop in public-sector jobs, then it will tend to have this effect. It's like saying "If this medicine doesn't cause side effects, it will tend to make you feel better." That doesn't mean you couldn't feel bad for other reasons; all we care about in this case is the net effect of this particular action.

In short, E is telling us that if we don't see that loss of 10 jobs you show in your "after" scenario, then the proportion of public jobs will be higher. That must be true!