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Re: At a large manufacturing corporation, the ratio of the annual job-rela [#permalink]
At a large manufacturing corporation, the ratio of the annual job-related injury insurance premium per employee to average employee annual net pay increased between 1978 and 2003. Yet, the annual number of job-related injuries per employee during that time decreased by more than 30 percent.
(insurance premium per employee)/(net salary per employee) increased ----(1)
# of injuries decreased by >30% ----(2)
--> From (1), either insurance premium per employee increased or net salary per employee decreased. From (2), # of injuries decreased

Which of the following, if true, best explains the discrepancy outlined above?
We need to explain the discrepancy. The discrepancy could be one of the following:
1. Even though the # of injuries decreased, why were the insurance premium increased?
2. Even though the # of injuries decreased, why were the salary decreased?

A. From 1978 to 2003, the severity of job-related injuries at the corporation decreased significantly due to compliance with new workplace safety rules.
The severity of the injuries decreased significantly. This implies that the treatment cost for these injuries would have decreased significantly. Therefore, the insurance premium should ideally have decreased. Discard!

B. The number of employees at the corporation decreased between 1978 and 2003.
The decrease in total # of employees does not indicate anything about average salary of the employees or the insurance premium per employee. Even if the total # of employees decreased, the avg salary and insurance premium PER PERSON could both be either increased or decreased. Discard!

C. During the 1978– 2003 period, inflation significantly eroded the purchasing power of the dollar.
Inflation eroded the purchasing power. This just says that the lives of the people became difficult. Increase/decrease in insurance premium or in net salary has nothing to do with inflation. Discard!

D. The corporation did not change its insurance provider during the 1978– 2003 period.
If at all, the insurance provider might have provided a loyalty discount to the corporation for continuing to avail its services. No impact on employee salary. Discard!

E. Between 1978 and 2003, health care costs per job-related injury rose sharply, pressuring insurance providers to raise premiums.
This answer choice says that insurance premium rose significantly. It still does not mention that the net salary did not increase by the same proportion. But, given the answer choices and given the context, this answer choice explains the discrepancy.

Therefore, the answer is (E).
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Re: At a large manufacturing corporation, the ratio of the annual job-rela [#permalink]
Expert Reply
Bunuel wrote:
At a large manufacturing corporation, the ratio of the annual job-related injury insurance premium per employee to average employee annual net pay increased between 1978 and 2003. Yet, the annual number of job-related injuries per employee during that time decreased by more than 30 percent.

Which of the following, if true, best explains the discrepancy outlined above?


A. From 1978 to 2003, the severity of job-related injuries at the corporation decreased significantly due to compliance with new workplace safety rules.

B. The number of employees at the corporation decreased between 1978 and 2003.

C. During the 1978– 2003 period, inflation significantly eroded the purchasing power of the dollar.

D. The corporation did not change its insurance provider during the 1978– 2003 period.

E. Between 1978 and 2003, health care costs per job-related injury rose sharply, pressuring insurance providers to raise premiums.


This is a CR Butler Question



Official Explanation:



E

Step 1: Identify the Question Type

The phrase “explain the discrepancy” indicates that this is an Explain question. Our task will be to resolve an apparent contradiction in the stimulus.

Step 2: Untangle the Stimulus

Explain questions typically do not involve arguments. Rather, the stimulus will present us with two seemingly contradictory statements. Our job is to reconcile them without changing any of the information we are given. Here, the apparent contradiction is that, between 1978 and 2003, the cost of insurance premiums came to represent a greater proportion of workers’ net pay. Over that same period, the number of job-related injuries per employee decreased. We would expect premiums to drop as the risk of injury drops; we need to explain the fact that they instead went up. It may also be the case that wages went down, while insurance premiums stayed the same, causing the ratio of insurance premiums to net pay to be higher.

Step 3: Predict the Answer

There must be some reason, unrelated to the number of workplace injuries, for the increase in the ratio of insurance premiums to net pay. Insurance premiums are typically tied to health care costs. So it may be that those job-related injuries that occurred in 2003 were more expensive to treat than those that occurred in 1978, either because those that occurred in 2003 were more severe or because diagnostic or other medical costs per injury increased during the stated time period.

Step 4: Evaluate the Choices

(E) matches our prediction exactly: the cost of treating an average workplace injury went way up. This would cause premiums to rise even if fewer workers were getting hurt on the job. (E) is the correct answer. (A) is incorrect because it is the opposite of what we want, or a 180. If the severity as well as the number of injuries decreased, then we would expect treatment costs, and thus insurance premiums, to decrease as well. (B) is incorrect because we’re given the insurance
premium per employee as well as the injury rate per employee. We don’t have to calculate either of those numbers, so the actual number of workers employed by the manufacturing corporation is not relevant. (C) may sound tempting because inflation could certainly cause insurance premiums to increase, but it should also cause wages to increase at a similar rate. Therefore, since what is increasing is the ratio of the insurance premium to net pay, inflation is irrelevant. (D) is incorrect because, like choice (A), it is the opposite of what we need. If the company had changed its insurance provider, that might account for the increased premiums. But if the company retained the same provider, we would expect the premiums to remain the same. Choice (E) is correct
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Re: At a large manufacturing corporation, the ratio of the annual job-rela [#permalink]
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