Labor Econ Exam 2

Mary can take a class that costs $10,000. The class teaches her a skill that will only be useful during the second year after training. What must the minimum pay for the skill in the second year for Mary to take the class? She could alternatively invest the $10,000 and earn an annual rate of return of 20%.

$14,400

A person with ________ indifference curves is most likely to decide to participate in the labor force.

) flat

Many working mothers have to pay for childcare costs. If they don't work, they do not have to pay for these costs. If childcare costs go down dramatically, the effect will be to ________ the labor force participation of working mothers and to ________ the hours of work for those mothers who continue to work.

) increase, decrease

problems with statistical measures of wage discrimination

-pre market characteristics are influenced by discrimination - we odn't have all the data on pre-marekt variables

Allowing more immigration of unskilled workers will raise the wage of skilled workers in a nation if:

-unskilled workers are substitutes for skilled workers but the scale effect dominates the substitution effect. -unskilled workers are complements in production to skilled workers.

How do economists measure wage discrimination?

1. Collect data for men and women on human capital and all other characteristics that determine wages 2. Regress earnings on each of these characteristics separately by gender 3. Estimate how much women would earn if their levels of productive characteristics were the same as men 4. Compare hypothetical avg. earnings for women to actual avg. earnings for men

The ratio of mean earnings, college to high school graduates (women, aged 25-34) was what in 2010?

1.66

Suppose that a female worker has considerable child-raising duties at home which reduce her labor market productivity and pay by 10% compared to her male counterpart. Also suppose that their observable productivity characteristics are equal. Then the standard procedure will estimate that wage discrimination reduces her wages by ________, while her actual reduction in wages due to labor market discrimination is ________.

10%; 0%

Which age group represents the peak for geographic mobility?

20-24

Combining all races and ethnic groups, women over the age of 24 who worked full-time earned an average of __________ of what males earned in the year 2011.

62 percent

What percentage of total wealth in North America is embodied in human capital?

75%

A worker is indifferent between job one lasting 4 hours a day, job two lasting 8 hours a day, and job three lasting 12 hours a day. Job two pays $10 an hour and tangency between the indifference curve and the budget constant occurs at 8 hours. One can conclude that

A) job one pays less per day but more per hour. B) job three pays more per day and more per hour.

Which economist was the first to offer an eloquent description of the circumstances that provide a basis for compensating wage differentials?

Adam Smith

Which of the following will decrease a person's preferred age of retirement?

An unexpected increase in wealth (for example, due to a higher stock market).

Which group is projected to comprise the smallest share of the American labor force by 2020?

Asians and Native Americans

In 1999, which cohorts had the highest earnings ratios?

Black women to White women

Which majors have shown the greatest percentage increase in women graduating with degrees between 1971 and 2010?

Business, Law, and Medicine

Which is not a cost of investing in human capital?

Cost of eating when at school

Workers who drop out of the labor force because they believe jobs are so scare that it is not worth looking for work are categorized by economists as:

Discouraged workers"

Which country or region has the lowest ratio of immigrants to labor force?

Europe

Suppose there is a large increase in immigrants from Romania into the United States. Native workers in the United States would be better off when they are

Gross complements with Romanian workers.

The trends in American labor force participation rates:

Have been observed in other industrialized countries as well.

On average, when does a worker's market productivity reach its apex (peak)?

In middle age

Why don't all workers necessarily take the highest-paying job available to them?

Individuals seek to maximize utility, not income.

The substitution effect of increased wages would:

Induce people to work more, ceteris paribus.

During a recession, what happens to the expected wage rate of those without jobs?

It falls sharply

Since 1950, how has the labor force participation rate among females changed?

It has approximately doubled.

Which of the following would likely increase the mobility of workers within a nation?

Laws making it less costly to fire workers

In a given market, women with the same skills as men earn less. Which of the following would suggest that the main source of the discrimination are the managers that must work with them?

Managers working with women must be paid more.

Which of the following events will likely make indifference curves (between income on the vertical axis and household time on the horizontal axis) flatter?

New inventions that make it easier to substitute market goods for household time.

Which of the following is a cost of going to college?

None of the above are costs of going to college.

Which age group of males showed the most dramatic reduction in labor force participation rates between 1900 and 1999?

Over 65

Which is not an example of labor market discrimination?

Paying a White male more than an Hispanic female because his marginal revenue product of labor is three times higher than hers

Human capital theory predicts what about workers' migratory patterns?

People will tend to flow from places with relatively poor earnings opportunities to areas with better earnings opportunities.

Which of these groups face relatively high psychic costs to moving?

People with more children

Which ancestral group had the highest earnings as a percentage of the U.S. average in 1990?

Russians

Suppose all textile workers in the United States formed a union. Which of the following will make it more likely the union will ask for a larger wage increase (assuming the union cares about both higher wages and retaining jobs)?

Textile firms will not invest in capital substituting for labor in producing textiles because textiles are a declining industry.

Suppose that janitors and engineers could both increase their earnings 20% by moving. In which of the following cases would janitors be more likely to move than engineers?

The cost of moving is a rising proportion of one's current earnings.

Which of the following is a psychic cost of moving across the country to take a different job?

The costs of leaving behind friends and a familiar environment for a strange new place where you don't know anyone.

Suppose OSHA imposes a new set of costly safety standards on an industry. Which of the following would be, conceptually, the best measure of the benefits of the new safety standards?

The dollar amount workers would be willing to reduce their wages by in exchange for the increase in safety due to the new standards.

The "steeper" a person's income-leisure indifference curve:

The higher the value they place on an extra unit of leisure.

One immigrant to country X increases his wage from $13,000 (in their home country) to $15,000. There are no costs to moving. A native worker was earning $15,000. However, the immigrant replaces him and the native instead lives and works at home, which he values at $15,000. Which of the following statements is true?

The immigrant could be taxed $1000 with the proceeds going to the native worker and the employer so that everyone is better off (compared to no immigration).

Over the "backward-bending" range of the labor supply curve:

The income effect outweighs the substitution effect.

Which of these probably has played the LEAST important role in the drop in unionization rates in the United States over the past 20 years.

The increase in the share of employment by female workers.

A worker's reservation wage is:

The lowest wage they would accept to offer their labor services.

An income-leisure indifference curve shows:

The tradeoff between income and leisure for a given level of utility.

Which of the following is not a determinant of the demand for leisure?

The weighted-average currency exchange rate between the U.S. and the most popular currencies of Europe

When OSHA imposes stricter safety regulations and therefore forces firms to reduce wages as risks decrease, which group is necessarily made worse-off?

Those workers who are not risk-averse (i.e., those who knowingly take risky jobs for the higher wages they provide)

In a two-person household, assume Tracy earns the most income and is totally incompetent in raising children. The other person in the household, Pat, is competent at raising children. Pat is more likely to stay at home and raise the child when

Tracy's income is high and Pat's wage is low.

Which country spent the most per pupil at the secondary level in 2008?

United States

Sally is indifferent between (1) working 8 hours a day and earnings $160 a day and (2) working 9 hours a day and earnings $200 a day. This implies that:

When Sally makes $160 in an 8 hour job, she puts a $40 value on the hometime foregone to work a 9th hour.

When might government safety regulations (such as those enforced by OSHA) make all workers better off?

When all workers are involuntarily undertaking on-the-job risks

In which situation would a small wage cut result in a large number of workers leaving a firm?

When search costs are low

Which of the following is a possible explanation for the average earnings of women being less than those of men?

Women average fewer hours of market work per week. Women tend to be underrepresented in high-paying jobs. Older women tend to have less schooling than older men.

As wives' wages rise relative to husbands, what would we expect to happen to labor supply choices within the household?

Women would take on relatively more market work and husbands would take on relatively more household work.

Income Effect

Work LessIf income increases, holding wages constant, desired hours of work will go down - demand for leisure hours will increase while the hours of work supplied by a worker to the labor market decreases

Substitution Effect

Work MoreIf income is held constant, an increase in the wage rate will raise the price and reduce the demand for leisure, thereby increasing work incentives - an increase in the opportunity cost of leisure reduces the demand for leisure

Worker X is paid $20,000 more in a dangerous job than what Worker X could make in safe jobs. Worker X values the job characteristic of safety at $15,000. If the government makes Worker X's job safe and if safe jobs continue to pay their current wage, then, assuming markets are competitive and wages can easily adjust

Worker X will be $5000 worse off.

If Job A pays $12.00 per hour and Job B pays $15.00 per hour, and the two jobs are identical in every way except that Job B is more dangerous to perform than Job A, the higher pay received for performing Job B is referred to as:

a compensating wage differential.

Through the substitution effect, an increase in the wage rate will cause ________ in the quantity of leisure desired.

a decrease

In general, women in low-paying jobs tend to earn ________ of male earnings (for those males in low-paying jobs) than women in high-paying jobs.

a higher percentage

Within each age group, people with ________ are most likely to migrate

a large amount of education

Fixed costs of working act like

a pure income effect.

For a firm to maximize profits, a reduction in on-the-job risks must be accommodated by:

a reduction in wages.

A relatively less "bowed-in" isoquant between dollars and time spent in household work implies:

a relatively large substitution effect of a wage increase

Holding all other factors constant, workers who are not averse to risk will tend to have jobs paying

above average wages

As long as immigrants are paid their marginal product and pay more in taxes than they consume in government benefits, then an increase of immigrants will cause

aggregate income of natives to increase.

The "price" of being in a union includes

all costs, including money and time

A compensating wage differential is

an extra wage that compensates workers for undesirable working conditions

Fixed monetary costs of working (such as commuting) will cause ________ the number of people choosing to work zero hours.

an increase in

Which of the following would cause quit rates to decline?

an increase in the average age of workers

In order to graph the various combinations of risk and wage levels that yield a given level of profits, you would draw:

an isoprofit curve.

Household production consists of

any commodities which are produced at home and yield utility to the family

Human capital is

any investment in a worker's skills.

Students who attend college because they enjoy the lifestyle and freedom are treating college

as a consumption good.

Future-oriented people discount future earnings ________ forward-looking people

at a lower rate than

Immigrants to the United States from countries with more equality of earnings tend to

be more skilled than the average worker in the sending country.

Indifference curves drawn with leisure and income on the axes have negative slopes

because people are willing to give up income to obtain more leisure and vice versa.

Introduction of a benefit that turns out to decrease productivity would cause a firm's isoprofit curve to

become steeper.

All of the following statements about the effectiveness of federal antidiscrimination programs are true EXCEPT

between programs, the greatest gains in increasing the black/white earnings ratio were from the affirmative action programs

An increase in the marginal tax rate on income will cause

both an income and a substitution effect.

A vertical contract curve implies that

both firm and workers are receiving economic rents.

A person who receives time-and-a-half overtime for working more than 8 hours per day will have a ________ which is ________ beyond 8 hours of labor.

budget constraint; steeper

If both the demand for and the supply of college graduates shift to the left, then the equilibrium wage would ________ and the number of college graduates would ________.

change ambiguously, decrease

If a family's budget constraint shifts because of a decrease in non-labor income, then a family member who works outside the home will

choose to increase his or her hours of work

Which of the following is NOT an expense of acquiring human capital?

cost of food and housing while attending school

An decrease in the daily cost of child care would likely

decrease the hours of work of mothers who continue to work

Economic theory suggests that the addition of illegal aliens to a domestic market with no minimum wages for day-laborers would:

decrease wages but increase employment in the domestic market for day-laborers.

Sally is single. Her income rises because of her wise stock investments, but her wage rate stays the same. In the labor supply model that replaces "leisure" with "household production time," the increase in income will likely

decrease work hours as she spends more time in the household consuming more commodities.

If two partners are substitutes in the production of household goods, then if one partner increases their leisure time (while still earning the same income), the other partner's leisure time is likely to

decrease.

Female earnings as a fraction of male earnings tend to ________ as age increases and tend to ________ as education increases.

decrease; increase

One study found that eating home-prepared meals is less fattening than eating out. Other things the same, increases in income should ______ obesity and increases in wages (of the persons making the meal) should _________ obesity.

decrease; increase

Decreased amounts of grants and loans available for college expenses would ________ the number of college graduates, while ________ wages paid to college graduates.

decrease; increasing

In 2012, the weekly hours spent on housework as children got older:

decreased for both women and men.

The offer curve describes

different wage-and-risk level offers made by different firms.

Workers' indifference curves for wage rates versus benefits will be

downward sloping

In the model where employers discriminate against females, those employers that devalue the productivity of the females more than other employers will

earn a lower profit.

An example of the downward bias of estimating the rate of return for a college education is:

excluding the benefits of a college education not necessarily reflected in greater productivity, such as greater cultural, historical, and philosophical insight.

A subsidy to pay for a portion of childcare costs will cause women who are participating in the labor force to work ________ hours.

fewer

Firm A's isoprofit curves are flatter than those of firm B. Therefore,

firm B will be willing to pay a larger compensating differential than firm A.

Higher costs of changing jobs will result in all of the following EXCEPT

firms will lose some monopsony power

Studies of voluntary public-sector job-training programs in the U.S. have concluded that such programs:

generally provide benefits in excess of costs

If the only working member of a household receives a decrease in his wage rate, then

he could work more, fewer, or the same number of hours as before.

Women have _________ quit rates because of _______ wages.

higher; lower

An employer who practices personal prejudice discrimination against minorities will _______________ relative to a non-discriminating employer.

hire fewer minorities and pay them a lower wage

If the decision-making process in a household is by partners bargaining with each other, then which of the following would be expect to see (compared to a household where one of the partners makes all the decisions)

holding household income constant, expenditures patterns will usually favor the partner making the most income.

In a competitive industry, it takes a fixed ratio of one skilled worker and two unskilled workers to produce a unit of output. If the immigration of unskilled workers lowers the wage of unskilled workers, it will likely

increase the demand for skilled workers due to the scale effect.

A nation shifts from a very progressive tax system (with a higher tax rate on higher incomes) to a tax system that tax all wages at the same rate. Both systems collect about the same revenues. This shift is likely to

increase the fraction of the population getting more education.

Unions usually have which of the following effects?

increase the fraction of total compensation paid in the form of employee benefits

Health insurance and pension plans that are not portable between companies

increase the willingness of the company to pay for the training of its workers

Single parents who are offered child support assurance programs when none existed for them before can be expected to:

increase their labor force participation rate.

A country has no welfare program. Then it introduces the following program: every one gets $4000 if they work more than 1000 hours a year (on top of what they earn). The effect of this event will be to ________ the labor force participation and the effect of this event on those were working more than 1000 hours will be to ________ hours of work.

increase, decrease

If both the "added-worker" and the "discouraged-worker" effects coexist, then we would expect the size of the labor force to ________ during a recession.

increase, decrease, or remain the same

) If leisure is a normal good then a decrease in non-labor income will cause desired hours of work to A

increase.

If income is held constant and the wage rate increases, the desired hours of work will

increase.

The Earned Income Tax Credit will probably ________ the labor force participation of lowwage workers and ________ the labor market hours of those with earning in the range that the tax credit is being phased out.

increase; decrease

Suppose the wages of both high school and college graduates decrease by $2,000 per year. In response to the opportunity cost, the number of people attending college will consequently ________, while in response to the earnings differential between high school and college graduates, college enrollments will ________.

increase; remain unchanged

Threat effects are

increases in non-union wages from threats to unionize

Increases in the minimum wage can help unions by

increasing the cost of substituting non-union labor for union labor.

A flatly sloped isoprofit curve, with wages on the vertical axis and risk of injury on the horizontal axis, indicates that

injury levels can be reduced easily and inexpensively.

Suppose that the labor force participation of married males is 70% and their unemployment rate is 20%, then their employment rate

is 56%.

Occupational discrimination

is keeping one group in lower-paying jobs although their potential productivity is equal to that of those who have access to higher-paying jobs.

One reason that quit rates tend to decline as firm size increases is:

large firms pay higher wages to reduce the probability of quitting because they have made substantial firm-specific screening investments in their workers.

The relative union wage advantage is generally

larger during recessions.

A risk-averse worker gains ________ utility from a job with possible layoffs than from one with no layoffs when the two jobs have the same number of expected hours of work and wage rate.

less

Women generally receive ________ on-the-job training than men, causing their age-earnings profiles to be ________ than those of men.

less; flatter

Most people travel more and enjoy more leisure when they are elderly than when they are middle-aged. This can be explained by

life-cycle considerations.

The female-male wage ratio in the United States is generally ________ than in other industrialized countries, probably because ________

lower; pay gaps between high- and low-paid workers are wider in the United States.

If males and females are paid the same price for each of their productive characteristics then it follows that

males and females are not compensated differently for each added year of experience.

Estimating expected earnings growth by comparing the relative earnings of new immigrants to those who have been in the U.S. for a decade or more:

may overstate the earnings growth immigrants can expect because immigrants who are less successful are more likely than others to return to their country of origin.

An increase in his or her expected career length will make a worker

more likely to change jobs.

Until recently, China limited the movement of workers from rural to urban areas. When it removed limits, most likely:

national income rose as workers became better matched with employers.

Suppose a study found that union wages were 10% higher than nonunion wages. Unions will have actually raised wages by more than 10% when

nonunion employers raised their wages in response to the threat of being unionized.

wage discrimination

occurs when people with identical productive characteristics are treated differently in the labor market because of which demographic group they belong to

In a life-cycle model, expected wage changes cause ________, while unexpected wage changes cause ________.

only substitution effects; income and substitution effects

A welfare program offers benefit B to those not working. For those working, it reduces benefit by a dollar for every dollar earned until no benefits are left to be paid. It is found that increasing B results in longer hours of work for those who continue to work. The likely cause of this is

only those with a higher preference for working (flatter utility curves) will continue to work

Employees tend to obtain on-the-job training

over a number of years, at a declining rate over their careers.

Wage discrimination is

paying one group less than another, although they have the same productive characteristics.

Investing in human capital refers to investments:

people make in themselves to improve their value in the labor market

"Hedonic wage theory" is based on the premise that:

people will choose a job consistent with their desire to maximize their overall happiness.

Employee-based discrimination along racial lines implies all of the following EXCEPT

profit-maximizing employers will seek to hire employees with a preference for discrimination.

How do economists measure occupational discrimination?

q Measures are based on comparing existing distribution of men and women in occupations with the distribution from random assignment q Index of Dissimilarity measures what percent of women workers would have to change jobs to have equal occupational distributions

France limited the work week to 35 hours for all workers, including managers and CEOs (who were mostly college educated and were working longer hours than most workers). The effect of this would likely:

reduce the fraction of the population getting a college education.

Firms use signals to estimate productivity so that they can

save on the costs of more accurate estimates.

If Alice's wage increases from $6.00 per hour to $6.50 per hour, then

she may want to work more, fewer, or the same number of hours as before her raise.

In the imperfect information model, employers who provide better information about their profitability to their employees

should see a decrease in both frequency and duration of strikes.

Since employers cannot possibly know the exact productivity of a job applicant, they use certain _______________ to separate the most promising applicants from the rest.

signals, such as a college degree or number of years of work experience

Empirically, the "added-worker" effect is ________ in magnitude than the "discouragedworker" effect.

smaller

Racial occupational dissimilarities are ________ and have fallen ________ over time than gender-related occupational dissimilarities.

smaller; faster

Employer discrimination implies that

some employers give up profits to avoid hiring one group.

The earnings of immigrants, when compared to those of similar native workers

start out below those of the native workers, but increase more rapidly.

An employer who does not want to hire women aged 18-35 because "they will likely have a child and quit" is practicing:

statistical discrimination.

In an industry, a unit of output can be produced by 3 unskilled workers or by 1 skilled worker. From this information, skilled and unskilled workers are

substitutes-in-production.

The human capital theory of migration compares the costs of a move to

the discounted sum of increased utility levels from each year on the new job.

If a firm reduces the risk in its workplace, then

the firm will likely pay lower wages to make up for the cost of increased safety

Due to a change in job title, a married woman decides to increase her hours worked outside the home (but with no increase in annual pay). As a consequence, her husband decides to work fewer hours in the home. This suggests

the husband and wife are complements in household production.

Empirical estimates show that for men

the income and substitution effects are both small so that wage changes have no effect on hours.

On the portion of a worker's labor supply curve that is backward-bending,

the income effect outweighs the substitution effect.

When workers indifference curves are drawn for wage rates versus injury risk

the indifference curves slope upwards because a higher wage is required to accept a higher risk of injury.

A decrease in the number of immigrants causes

the labor supply curve to shift to the left.

For workers who emigrate to the United States from a country with a more equal distribution of earnings,

the largest potential gain exists for skilled workers.

John is trying to decide whether to go to college or to start working right out of high school. College as an investment is most likely justified when ________ is greater than the cost of going to college.

the present value of the difference between what John would earn as a college graduate and what he would earn as a high school graduate

The overall wage ratio of newly arrived male immigrants to native-born men fell substantially from 1960 to 1980. This is probably because

the relative skill level of immigrants has declined.

If comparable workers are paid an extra $1.00 per hour the night shift, then

the value of the day shift is worth at least $1.00 per hour to some workers

In order for a worker to evaluate the characteristics of a job:

the worker can make a reasonably accurate guess about the risks associated with the job based on direct observations and reports from other employees.

If workers in one group are discriminated against and face higher search costs, then

their employers will have more monopsony power over them than over employees in the other group.

Contrary to the classic model of profit maximization being a firm's primary objective, employers who discriminate appear to be maximizing:

their own utility.

Estimating the effect of unions on wages is difficult because

there is no way to estimate what wages would be if unions did not exist.

Suppose that by moving, one could increase one's income by 20%. Which of these events will reduce the likelihood a person will move

wages in the person's profession, nationwide, fall dramatically.

The extent to which the marginal expense of labor exceeds the wage rate is greater:

when mobility costs are high.

When we state that compensating wage differentials exist for comparable workers, we do NOT assume that

workers maximize income.

A firm offers the optimal mix of wages and benefits. It is paying $5 an hour in wages and $3 in benefits. The minimum wage is then increased from $4.75 to $6 an hour. Assume all workers have the same utility curves (and have the usual shape). If the firm continues to spend $8 an hour on workers, then

workers will be worse off.