econ ch 17 markets for labor and other factors
Suppose that a large oil field is discovered in Michigan. By imposing a tax on the oil, the state government is able to eliminate the state income tax on wages. What is likely to be the effect on the labor supply curve in Michigan?
The quantity of labor supplied in Michigan will increase if the substitution effect is larger than the income effect
Sean Astin, who played Sam in the Lord of the Rings movies, wrote the following about an earlier film he had appeared in: "Now I was in a movie I didn't respect, making obscene amounts of money (five times what a teacher makes, and teachers do infinitely more important work) ..." Source: Sean Astin, with Joe Layden, There and Back Again: An Actor's Tale, New York: St. Martin's, 2004, p. 35. Are salaries determined by the importance of the work being done? If not, what are they determined by? Salaries are determined
by the marginal revenue product of the last worker hired and the supply of labor.
Which of the factors listed below does not cause the demand curve for labor to shift?
a change in the wage
Which of the statements below best describes the marginal productivity theory of income distribution?
The distribution of income is determined by the marginal productivity of the factors of production that individuals own.
In what sense do employers who discriminate pay an economic penalty? The economic penalty is not enough to eliminate discrimination because of the presence of all of the following except
The employers face higher costs, lower profit and eventual elimination from the market. compensating differentials.
What is the difference between the marginal product of labor and the marginal revenue product of labor for a firm in a perfectly competitive market?
The marginal revenue product of labor is equal to the marginal product of labor multiplied by the product price.
As the wage increases
the demand for labor curve does not shift, but the quantity demanded of labor decreases.
At the equilibrium, the price of capital is equal to
the marginal revenue product of capital.
Which of the following is a reason for choosing a salary system rather than the more profitable commission, or piece-rate system, of compensation?
All of the above.
Why is the supply curve of labor usually upward sloping?
As the wage increases,the opportunity cost of leisure increases,causing individuals to devote more time to working.
Define economic discrimination. Is the fact that one group in the population has higher earnings than other groups evidence of economic discrimination?
Economic discrimination is paying a person a lower wage or excluding a person from an occupation on the basis of an irrelevant characteristic such as race Both a and b.
When there is a firm with a monopsony in the labor market, which of the following occurs?
Fewer workers will be hired at lower wages.
Refer to the graph to the right. According to the analysis of compensation in the textbook, which line represents the compensation of a salesperson based on commission?
Line 1
The total amount of oil in the earth is not increasing. Does this mean that in the market for oil, the supply curve is perfectly inelastic? Briefly explai
No. The supply curve for oil is not perfectly inelastic because the quantity supplied still responds to price.
Which of the following factors shifts the labor supply curve?
all of the above
Daniel had been earning $7272 per hour and working 45 hours per week. Then Daniel's wage changes to $6060 per hour, and as a result, he now works 40 hours per week. What can we conclude from this information about the income effect and the substitution effect of a wage change for Daniel?
less more larger than
How is the rental price of capital determined? The rental price of capital is the price where the
marginal revenue product of capital equals the supply of capital.
The figure compares the compensation that a shoe salesperson receives if she is on a straight salary of $3030 per day or if she receives a commission of $5 for each pair of shoes sold. Which compensation structure is preferred by the salesperson? Suppose the salesperson sells lessless than 66 pairs of shoes per day and only cares about compensation.
salary commission
What are the three most important variables that cause the market supply curve for labor to shift? The supply curve for labor shifts with changes in
the population, demographics, and opportunities in other labor markets
Which of the following is true about economic discrimination? Most economists believe that only part of the gap between the wages of white males and the wages of other groups is due to discrimination. Economists believe that some of the gap is explained by which of the following factors? Which of the following is part of the economic analysis of discrimination? If discrimination makes it difficult for a member of a group to find employment in a particular occupation, his or her incentive to be trained to enter that occupation is reduced. Which of the terms below is most closely associated with this situation?
Economic discrimination is illegal, but it is possible that employers ignore the law All of the above. Employers who discriminate pay an economic penalty imposed by market competition negative feedback loop
Over time, the gap between the wages of workers with a college degree and the wages of workers without a college degree has been increasing. Shouldn't this gap have increased the incentive for workers to earn a college degree, thereby increasing the supply of college-educated workers and reducing the size of the gap? This wage gap may have not been reduced because
a college education is only a signal of desirable worker characteristics and does not change wages
When an employer pays higher wages to compensate workers for unpleasant aspects of their jobs, which of the following is the employer offering?
a compensating differential
Sanitary engineers may earn higher wages than receptionists
all of the above.
Uber, the ride-hailing service, increases the price of a ride when demand increases, as happens, for instance, on New Year's Eve or during a snowstorm. An article in the New York Times discussed how new Uber drivers respond to fluctuations in the wages they earn: "Many of these drivers appeared to have an income goal in mind and stopped when they were near it, causing them to knock off sooner when their hourly wage was high and to work longer when their wage was low."
back bending
Consider the market for a natural resource such as natural gasnatural gas. Assume the supply curve for natural gasnatural gas is a vertical line, indicating that the quantity supplied does not respond to changes in prices, as illustrated in the graph to the right. The price of a factor of production that is in fixed supply is called
both a and b 60
What is personnel economics? Personnel economics is
both a and b.
According to a study, the number of jobs in which firms used bonuses, commissions, or piece rates to tie workers' pay to their performance increased from an estimated 30 percent of all jobs in the 1970s to 40 percent in the 1990s. Source: Thomas Lemieux, W. Bentley MacLeod, and Daniel Parent, "Performance Pay and Wage Inequality," Quarterly Journal of Economics, Vol. 124, No. 1, February 2009, pp. 1-49. Why would systems that tie worker pay to how much they produce have become increasingly popular with firms? Systems that tie worker pay to how much they produce have become increasingly popular because such systems The same study found that these pay systems were more common in higher-paid jobs than in lower-paid jobs. What explains this result?
both a and b. Workers in lower-paid jobs are more likely to become less concerned about quality.
If labor demand is unchanged, an increase in labor supply will ________ the equilibrium wage and ________ the number of workers employed.
decrease; increase
If the labor supply curve shifts to the rightright and the labor demand curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? 1.) Use the line drawing tool to graph a new labor supply curve that has shifted to the rightright as described above. Label this line 'Labor supply 2Labor supply2'. 2.) Use the point drawing tool to indicate the new equilibrium wage and equilibrium level of employment. Label this point 'Point A'.
decreases increases
The demand for labor is called a derived demand, because
demand for labor is derived from the firm's output choice.
An article in the Wall Street Journal discussed why the hotel workers union in New York City was against a proposal for more hotels to be built in mid-town Manhattan: "The union is concerned that rapid hotel development shrinks room prices and profit margins, driving down the wages of its members."
derived from falls decreasing lowering
Why are there superstar basketball players but no superstar plumbers? There are superstar basketball players but not superstar plumbers
due to technological advances that have increased the number of viewers for basketball games.
Why is the demand curve for labor downward sloping? The demand curve is downward sloping
due to the law of diminishing returns.
The market demand curve for labor is determined by adding up the wages for each worker at each quantity of labor demanded, holding constant all other variables that might affect the willingness of firms to hire workers.
false
The market supply curve of labor is determined by adding up the wages for each worker at each quantity of labor supplied, holding constant all other variables that might affect the willingness of workers to supply labor.
false
Prior to the early 1920s, there were few restrictions on immigration into the United States. Congressional legislation limited mmigration from the 1920s through the mid-1960s, until Congress eased restrictions with passage of the Immigration Act of 1965. A surge in immigration followed the passage of the Immigration Act of 1990.
few limited eased surge
Most labor economists believe that many adult males are on the vertical section of their labor supply curves. Explain when and why someone's supply of labor curve would be vertical, using the concepts of income and substitution effects. Source: Robert Whaples, "Is There Consensus among American Labor Economists? Survey Results on Forty Propositions," Journal of Labor Research, Vol. 17, No. 4, Fall 1996. Suppose an adult male is on the vertical section of their labor supply curve
fewer more equal to
Lawrence Katz, an economist at Harvard, was quoted in a newspaper article as arguing that differences between the incomes of male physicians and female physicians "are largely explained by individual choices." He also noted that discrimination could account for part of the gap "though it isn't clear how much." Source: Josh Mitchell, "Women Notch Progress," New York Times, December 4, 2012. When Katz used the phrase "individual choices," he meant that female physicians ma These individual choices can result in differences between how much men and women are paid because It is difficult to estimate how much of the gap between what men and women are paid is due to discrimination because
work fewer hours or take time off for child care they will result in differences in experience and skill over time. there are many other factors that influence wage differences.
During the same period that robots and other new technologies have been affecting the labor market, there has been an increase in imports to the United States of manufactured goodslong dash—including shoes, clothing, and automobileslong dash—from countries in which workers receive lower wages. In addition, some U.S. firms have engaged in "offshoring" in which they move some operationslong dash—such as telephone helplineslong dash—to other countries where wages are lower. Which workers are most likely to lose their jobs to robots and offshoring? It might be possible to distinguish between the effects of these different developments on the labor market by
Middle-skilled workers whose jobs do not involve face-to-face contact. examining the evidence about robotic and technological job replacement on jobs that have been offshored and that support the manufacture of goods imported into the U.S., and comparing those trends to similar U.S.-based occupations.
A columnist in the New York Times notes that the U.S. labor supply "in the next decade is expected to expand at less than half the pace of the 1960s, 1970s and 1980s." Source: Eduardo Porter, "The Payoff in Delaying Retirement," New York Times, March 5, 2013. These changes in the growth rates in the U.S. labor supply are the result of
more retirements and fewer families beginning to have two wage earners.
State whether each of the following events will result in a movement along the market demand curve for labor in electronics factories in China or whether it will cause the market demand curve for labor to shift. If the demand curve shifts, indicate whether it will shift to the left or to the right in the provided graph.
movement along shift inx3
Research by economists Susan Helper, Morris Kleiner, and Yingchun Wang has found that the use of pay-for-performance, or piece-rate pay, has declined in manufacturing industries in recent decades. In a summary of this research, Lester Picker writes: "...this change has come about with the adoption of modern manufacturing systems in which firms produce a greater variety of products to a more demanding quality and delivery standard." What characteristics determine whether a salary system is likely to be more profitable for a manufacturing firm? Source: Lester Picker, "The Decline of 'Piece Rate' Compensation in Manufacturing," The Digest, National Bureau of Economic Research http://www.nber.org/digest/may11/w16540.html. Manufacturing firms are likely to consider a salary system to be more profitable if Why would modern systems "in which firms produce a greater variety of products to a more demanding quality and delivery standard" than manufacturers used previously result in firms choosing a salary system rather than piece-rate pay to pay their workers?
output is difficult to measure and attribute to individual workers. The manufacturing conditions of modern systems will induce firms to choose a salary system because the quality of output produced is now more important.
In most jobs, the harder you work, the more you earn. Some workers would rather work harder and earn more; others would rather work less hard, even though as a result they earn less. Suppose, though, that all workers at a company fall into the "work harder and earn more" group. Suppose also that the workers all have the same abilities. In these circumstances, would output per worker be the same under an hourly wage compensation system as under a piece-rate system? Briefly explain. Compared to an hourly wage compensation system, under a piece-rate system
output would be higher because workers will have incentive to produce more.
Suppose that comparable-worth legislation is passed and the government requires that sanitary engineers and receptionists must be paid the same wage of $500 per week. Now how many sanitary engineers will be hired and how many receptionists will be hired?
4 10
The following comments were made by two employers regarding a proposed increase in the federal minimum wage: Dillon Edwards, founder of Parlor Coffee: "[The increase] should definitely be [to] more than [$8.75 an hour]... It needs to be at least in double digits." Beth Fahey, owner of Creative Cakes: "If you raise the minimum wage....I can't raise everybody. If I do, the price of a doughnut is going to be $3 and nobody's going to buy it." Source: Leslie Josephs and Adam Janofsky, "As Minimum Wages Rise, Smaller Firms Get Squeezed," Wall Street Journal, June 11, 2015. The marginal revenue product of labor is likely to be greater for the employees of
Parlor Coffee because the founder supports a higher minimum wage, which indicates that the product price is higher
Many people have predicted that the price of natural resources should rise consistently over time in comparison to the price of other goods because the demand curve is rising while the supply curve must be shifting inward as natural resources are used up. However, the relative prices of most natural resources have not been increasing. Choose the graph showing the demand and supply for natural resources that can explain why prices haven't risen, even though demand has increased.
XX
An article in the Wall Street Journal on the use of driverless trucks at Rio Tinto's Australian mines observes, "The new equipment cut many driving jobs ... But the reductions will be partly offset by new types of work. The company now needs more network technicians ... a hybrid of electrical and mechanical engineering that hardly existed five years ago." Source: Timothy Aeppel, "What Clever Robots Mean for Jobs," Wall Street Journal, February 24, 2015. It is likely that total employment at Rio Tinto's mines will The average wage Rio Tinto pays is likely to be Are the wages of the truck drivers who were replaced by robots likely to end up higher or lower in their new jobs?
have decreased as a result of its use of robots higher because the jobs created due to robotics are more highly skilled and pay higher wages. If these workers can acquire the engineering skills to maintain and remotely operate the robotic drills and trucks, they could have higher wages, but there will be fewer of them.
Baseball writer Rany Jazayerli assessed the Kansas City Royal's outfielder Jose Guillen as follows: "Guillen has negative value the way his contract stands." Source: Rany Jazayerli, "Radical Situations Call for Radical Solutions," ranyontheroyals.com, June 6, 2009. How could a baseball player's contract cause him to have negative value to a baseball team? Jose Guillen would have negative value to the Kansas City Royals if
his salary is greater than the additional revenue he generates
What are the five most important variables that cause the market demand curve for labor to shift? The demand curve for labor shifts with changes in
human capital, technology, the price of the product, the quantity of other inputs, and the number of firms in the market.
What is the marginal productivity theory of income distribution? The marginal productivity theory of income distribution suggests that
income is determined by the marginal productivity of the factors of production that individuals own
In a competitive labor market, imposing a minimum wage should reduce the equilibrium level of employment. Will this also be true if the labor market is a monopsonyLOADING...? Briefly explain.
increase hire fewer lower
If labor supply is unchanged, an increase in labor demand will ________ the equilibrium wage and ________ the number of workers employed.
increase increase
When a firm moves from straight-time pay to commission or piece-rate pay, the productivity of a firm's employees may If piece-rate or commission systems of compensating workers have important advantages for firms, why don't more firms use them? Some firms don't use piece-rate or commission systems of compensation because
increase as less productive employees leave and those who remain have an incentive to sell more. it is difficult to attribute output to any particular worker
If the labor demand curve shifts to the rightright and the labor supply curve remains unchanged, what will happen to the equilibrium wage and the equilibrium level of employment? 1.) Use the line drawing tool to graph a new labor demand curve that has shifted to the rightright as described above. Label this line 'Labor demand 2Labor demand2'. 2.) Use the point drawing tool to indicate the new equilibrium wage and equilibrium level of employment. Label this point 'Point A'.
increases x2
For years, the Goodyear Tire & Rubber Company compensated its sales force by paying a salesperson a salary plus a bonus based on the number of tires he or she sold. In early 2002, Goodyear made two changes to this policy: (1) The basis for the bonus was changed from the quantity of tires sold to the revenue from tires sold, and (2) salespeople were required to get approval from corporate headquarters in Akron, Ohio, before offering to sell tires to customers at reduced prices. Source: Timothy Aeppel, "Amid Weak Inflation, Firms Turn Creative to Boost Prices," Wall Street Journal, September 18, 2002. Explain why these changes were likely to increase Goodyear's profits. These changes were likely to increase Goodyear's profits because previously
salespeople had an incentive to sell more tires by reducing tire prices.
Sam Goldwyn, a movie producer during Hollywood's Golden Age, once remarked about one of his stars: "We're overpaying him, but he's worth it." a. Goldwyn was overpaying this star because The star have would still have been worth the high payment because
the marginal revenue product of this star was very high and the supply of people with this kind of star quality was low. the production company earned a very high revenue due to the high marginal revenue product of the star.
What is a monopsony? A monopsony is
the only buyer of a factor of production.
How can we measure the opportunity cost of leisure? The opportunity cost of leisure is The substitution effect of a wage increase Why is the supply curve of labor usually upward sloping?
the wage rate. causes a worker to supply a larger quantity of labor, and the income effect causes a worker to supply a smaller quantity of labor. As the wage decreases the opportunity cost of leisure decreases causing individuals to devote less time to working.
