Multiple choice

Directions: For this question, select the best of the answer choices given.

Firms adopting “profit-related-pay” (PRP) contracts pay wages at levels that vary with the firm's profits. In the metalworking industry last year, firms with PRP contracts in place showed productivity per worker on average 13 percent higher than that of their competitors who used more traditional contracts. If, on the basis of the evidence above, it is argued that PRP contracts increase worker productivity, which of the following, if true, would most seriously weaken that argument?

  1. Results similar to those cited for the metalworking industry have been found in other industries where PRP contracts are used.

  2. Under PRP contracts costs other than labor costs, such as plant, machinery, and energy, make up an increased proportion of the total cost of each unit of output.

  3. Because introducing PRP contracts greatly changes individual workers' relationships to the firm, negotiating the introduction of PRP contracts is complex and time consuming.

  4. Many firms in the metalworking industry have modernized production equipment in the last five years, and most of these introduced PRP contracts at the same time.
Reveal answer Fill a bubble to check yourself
D Correct answer
Explanation

The argument claims PRP contracts increase productivity based on correlation. Option D most seriously weakens this by introducing a confounding variable: modernization of equipment. If firms modernized equipment AND introduced PRP contracts simultaneously, the productivity gain could be from modernization, not PRP. This is a classic correlation-causation flaw. Option A actually strengthens the claim by showing broader evidence. Option B discusses cost structure but doesn't address productivity causes. Option C talks about implementation complexity, not effectiveness.

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