ECON 3100 Final

Suppose 1 in 200 pilots flying Space-Race aircraft die each year while only 1 in 500 pilots flying Subspace Gliders die each year. Moreover, the average salary of Space-Race pilots is $115,000 while the average salary of Subspace Glider pilots is $109,000. Given this information, what is the implied statistical value of a life of a pilot?

$2,000,000

Paula is considering going to law school. If she does, she will spend $60,000 on tuition and books to get a college education (during the first time period), $120,000 on tuition and books to get a law degree (during the second time period), and her law degree will earn her $620,000 during the remainder of her work-life (during the third time period). Paula's time preference for money is associated with a per-period interest rate of 20 percent. Approximately what is Paula's present value of obtaining a law degree?

$270,500

The Gini coefficient in a perfectly unequal society will have a Gini coefficient of ________ while a perfectly equal society will have a Gini coefficient equal to ________.

1 ; 0

Consider the following hypothetical difference-in-differences results concerning the average of hours worked in "big-box stores" between North and South Dakota before and after North Dakota increased its minimum wage.

11.7 hours

The union wage gap for private sector unions in the United States is presently on the order of

15%

What is the union wage gap if the average union salary is $92,000 while the average nonunion salary is $80,000?

15%

Which age group experiences the highest rates of unemployment in the United States?

16 to 24 years old.

Consider an economy with a labor force of 100 million people. Each period, 60% of the unemployed population finds a job while 15% of the employed population loses their job. What is the steady-state unemployment rate in the economy?

20%

Of the 500,000 people (age 16+) in a particular country, 300,000 people are in the labor force. Of these, 240,000 are employed and 60,000 are unemployed. What is the unemployment rate?

20%

In the United States, the average replacement ratio associated with unemployment insurance benefits is

35%.

Consider an economy with a labor force of 200 million people of which 180 million are employed while 20 million are unemployed. Each period, 45% of the unemployed population finds a job. If the economy is in a steady-state of unemployment, what percent of the employed population lose their job each period?

5%

Of the 500,000 people (age 16+) in a particular country, 300,000 people are in the labor force. Of these, 240,000 are employed and 60,000 are unemployed. What is the labor force participation rate?

60%

Centerville has 200 unemployed people. Of these 200 people, 35 are unemployed for two weeks before finding a new job, 55 are unemployed for four weeks before finding a new job, 30 are unemployed for six weeks before finding a new job, 15 are unemployed for 10 weeks before finding a new job, and 65 are unemployed for 15 weeks before finding a new job. Approximately what is the average spell of unemployment in Centerville?

8 weeks

Roughly speaking, the estimated return to a year of education in the United States is

9%

Why might people choose to go to college?

A college education signals to firms that the worker is highly motivated. A college education increases one's productivity, which will be rewarded in the labor market with higher wages. Someone enjoys the process of becoming educated. One cannot find employment. All of these options are reasons people might choose to go to college.

What is the discouraged worker effect?

A discouraged worker stops looking for a job and therefore is no longer counted as being in the labor force.

Suppose Amy has 100 efficiency units of labor, Bill has 50 efficiency units of labor, and Chris has 20 efficiency units of labor. Which of the following is true?

A firm will hire Amy if her wage is at most double that of Bill's and at most five times that of Chris's.

Which of the following is true?

A person might choose to not move because their family is better off by not moving, even though the person would individually be better off by moving.

What is the added worker effect?

A secondary worker enters the labor force when the main worker in the household has lost his or her job or has experienced a wage cut.

Which is not a factor that generates return and/or repeat migration flows?

A worker lands a job after the move that pays a wage that is much greater than originally expected.

Abby's reservation price for working in a risky job is $5 per hour while Rudy's reservation price for working in a risky job is $8 per hour. Characterize Abby and Rudy's job selections if safe jobs pay $12 per hour and risky jobs pay $18 per hour.

Abby works a risky job while Rudy works a safe job.

When graphing a worker's indifference curves in Probability of Injury (x-axis) versus Wage (y-axis) space, Al's indifference curves are steeper than Pete's indifference curve. In this case,

Al requires a greater wage increase than Pete in order to willingly take on more risk.

Which of the following best defines final-offer arbitration?

An arbitrator chooses the firm's last offer or the union's last offer, and both sides must abide by whichever contract is chosen

Which of the following best describes the historical pattern in the average number of hours worked per week in the United States when the large drop during the Great Depression is ignored?

Average hours constantly fell from about 55 hours per week in 1900 to about 33 hours per week in 2010.

Which group tends to have the highest unemployment rate in the United States?

Blacks

What is the budget line for consumption (C) and leisure (L) if a person faces a constant wage of $10 per hour, there are 112 hours in the week to work, and she receives non-labor income of $220 per week?

C + 10L = 1340

Which of the following is a possible disadvantage of a tournament?

Competitors have little incentive to help one another (and they may even sabotage each other's work). Workers will stop providing effort as soon as they believe they have no chance to win the prize. Workers may collude to share the prize in order to provide lower levels of effort. The outcome of a tournament may appear to be random. All of the above are possible disadvantages of a tournament.

Which of the following statements regarding immigration is true?

Consumers benefit from immigration via lower prices.

Economic theory suggests that discriminating employers will be driven from the marketplace when the output market is competitive. Why?

Discrimination imposes an additional cost on the employer, and high-cost firms are eventually driven out of a competitive output market.

What is the main theoretical implication regarding the standard employer-based discrimination model?

Discrimination is not profitable.

Suppose an economy exhibits general conditions of downward-sloping labor demand, upward-sloping supplies of domestic and immigrant labor, and a competitive labor market. Which of the following is not a likely outcome of immigration?

Domestic workers who keep their job will experience an increase in earnings.

One piece of evidence in favor of the efficiency wage model is that some sectors of the economy pay relatively high wages, whereas other sectors pay lower wages. This supports the efficiency wage model as it seems to provide evidence of what?

Dual labor markets exist.

Which one of the following statements concerning employee discrimination is not true?

Employers have no reason to employ a segregated workforce if there is employee discrimination.

How would imposing a minimum wage above the market-clearing wage affect employment in a competitive labor market?

Employment would decrease as some workers who are willing to work at the lower competitive wage would no longer be able to find work.

There is a debate over how much of the female-male wage gap is due to differences in labor market differences. What is one reason why this is highly debated?

Even if, conditioning on age, women have less labor market experience than men, this difference itself may be due to discrimination.

Which of the following is not a possible explanation as to why wage inequality increased markedly over the last 40 years in the United States?

Federal legislation allowed employers to legally engage in more racial discrimination.

Why is the short-run labor demand curve less elastic relative to the long-run labor demand curve?

Firms are better able to substitute capital for labor in the long run compared to the short run.

Suppose there are two types of jobs-safe and risky. Safe jobs currently pay $10 per hour. Risky jobs currently pay $20 per hour. The government intervenes in the market, mandating that all firms offer safe jobs and pay a wage of $10 per hour. Which of the following is true?

Firms that originally offered risky jobs are hurt by the policy.

Which of the following statements is false?

Free-riding can result from a compensation scheme that gives competitive individual bonuses.

Ability bias can arise when estimating compensating wage differentials associated with various job characteristics. What is ability bias in this context?

High-skilled workers are likely to have higher wages than unskilled workers, but they are also likely to trade some of their higher wages for better job amenities.

How are unemployment rates in the United States related to education?

Higher levels of education are associated with lower rates of unemployment.

Which of the following is a reason why the union wage gap might overestimate the actual effect unions have on wages?

Higher union-negotiated wages likely attract more productive workers to union jobs.

Which one of the following conclusions is not supported by the intertemporal substitution hypothesis?

Hours of work over the life cycle will be inversely related to wages over the life cycle.

Which statement about human capital is false?

Human capital has a low rate of return.

Consider a color-blind firm that is currently maximizing profits. An affirmative action policy is put in place requiring that all firms in the industry abide by a certain quota. Which of the following will occur?

If the quota is already met, the firm will make no changes in its hiring practices.

Suppose a law firm negotiates a very low price for each of its 1000 employees to be members at the athletic club that is located next to the law firm. Which of the following is not likely to be true?

If the typical individual gym membership costs $50 per month, the law firm should expect to save $50,000 per month in wages.

Which of the following is the most likely reason the age-earnings profile is steeper for immigrants than it is for natives in the United States for ages 20 to 45?

Immigrant wages increase rapidly when they first come to the United States and begin developing stronger English skills.

What is meant by the skill-bias technological explanation of increasing inequality?

Inequality has increased because technological advances over the last 40 years have complemented the productivity of skilled labor relative to unskilled labor.

In general terms, which of the following statements regarding changes in income inequality in the United States is correct?

Inequality has increased slightly over the last 40 years as witnessed by the Gini coefficient increasing from below 0.4 in 1970 to over 0.45 in 2010.

What happens to the piece-rate wage if there is a ratchet effect?

It decreases over time.

Which one of the following statements about the Gini coefficient is not true?

It must fall when the amount of income in an economy increases.

Which is not true regarding a delayed-compensation contract?

It necessarily costs more in labor costs than a time rate system.

Which one of the following statements best describes profit sharing?

It provides a system by which workers receive a share of the firm's profits.

Which of the following best captures how job turnover is related to the age-earnings profile?

Job quits are associated with a higher profile, while layoffs are associated with a lower profile.

Chris and Jordan are a two-person household. Chris's market hourly wage is $40, but Chris can also produce $20 of household production each hour. Jordan's market hourly wage is $50, but Jordan can also produce $30 of household production each hour. This household chooses work schedules to maximize utility. When it does this, which of the following cannot occur.

Jordan specializes in marketplace work, while Chris splits time between marketplace and household work.

Assume that the market-clearing wages are $10 per hour in a safe job and $18 per hour in a risky job. Then, at the completion of the war, many ex-soldiers who enjoy risky ventures enter the labor market. Which of the following is not a likely outcome of this change?

Many firms that currently offer risky jobs will begin offering safe jobs.

Which of the following regarding internal migration in the United States is not true?

Migration equalizes wages across regions.

Which of the following statements about migration is not true?

Migration is greater among married couples compared to single-person households because migration costs are less for married couples.

What does it mean for the U.S. economy to have a positively skewed wage distribution?

Most workers earn below the average wage.

Which of the following statements about self-selection and immigration flows into the United States is false?

Negative selection occurs when the United States offers a greater return to skill at high skill levels than the source country.

If a two-person household moves from Miami to Atlanta, which of the following can describe the household?

Neither member of the household is a tied stayer.

Suppose all 18-year-olds are identical in every way except that some have easy access to credit (i.e., they face a low interest rate when borrowing money) while others have a difficult time accessing credit (i.e., they face a high interest rate when borrowing money). Which of the following statements is not true?

No one without easy access to credit will go to college.

A couple is considering moving to Tampa from Chicago. The cost of moving for Crystal is $300 while the cost of moving for Amelia is $600. Crystal earns $500 in Chicago and $550 in Tampa. Amelia earns $200 in Chicago and $1000 in Tampa. Will they move as a couple?

No, because they would lose $50 by moving to Tampa when all benefits and costs are considered.

Which of the following is a reason why the union wage gap might underestimate the actual effect unions have on wages?

Nonunion firms may pay higher wages in order to prevent their workers from unionizing.

The consensus estimate of the elasticity of labor supply among females is −0.1. The interpretation of this estimate is what?

On average, women will reduce hours of work by 1% when their wage increases by 10%.

Which statement best describes international comparisons of unionization rates?

Private sector unionization rates vary greatly by country.

Which of the following is a normative rather than a positive statement?

Public education should be funded primarily at the state level

When the government imposes a payroll tax on employers (and not on workers), which of the following effects will not come about?

Real wages will remain fixed if the labor market is competitive.

How have average wages of college graduates compared to the average wages of high school graduates over the last 30 years?

Relative college wages have increased drastically over the last 30 years, from being 50% more than high school wages in 1980 to almost 100% more in 2005.

For which reason is increasing the federal minimum wage not a good antipoverty program?

Roughly two-thirds of minimum wage earners are not the primary worker in their household.

Why is frictional unemployment considered to be productive?

Search activities of workers and firms resulting in frictional unemployment improve the allocation of resources.

Why might it be wrong to include self-proclaimed discouraged workers in calculations of the unemployment rate?

Some discouraged workers are taking advantage of a low-wage period to consume large amounts of leisure.

Which of the following is not associated with strikes?

Strike duration is generally pro-cyclical.

When considering whether to migrate to a particular location, one calculates the present value of living in that location. How does one best calculate the present value of living in a location?

Sum the annual discounted incomes one will earn in the location.

Which of the following statements regarding the Affordable Care Act (ACA) is true?

The ACA could have negative employment effects as some firms will not expand above having 50 workers in order to avoid the mandate.

Consider an economy with a particular distribution of income. Over the next 10 years, the income of all households increases by $20,000. How will the Gini coefficient change over those 10 years?

The Gini coefficient will decrease.

In the standard theory of compensating differentials, a worker's reservation price is the

The amount of money it takes to entice the worker into accepting a risky job.

How does the asking wage depend on the unemployment insurance (UI) system in the United States?

The asking wage will fall as the unemployed worker gets closer to exhausting his or her UI benefits.

Which of the following statements is consistently associated with the standard migration model?

The decision to move is expected to increase the household's overall utility.

If unskilled domestic labor and unskilled immigrant labor are substitutes in the production process, then a more open immigration policy will likely result in all but which of the following?

The demand curve for unskilled labor shifts up (out).

The market for economists in Greenland has recently experienced an increase in the number of economists employed and an increase in the wage paid to economists. What could have generated such a change?

The demand for economists recently increased while the supply of economists remained unchanged.

What is likely to happen to the demand for firemen as building codes change to require firewalls and sprinklers to be included in all new construction?

The demand for firemen will fall as the demand for fire protection services falls

Expansions in globalization and the reduction of worldwide trade barriers during the 1980s and 1990s most likely had what effect on the demand for U.S. labor?

The demand for unskilled workers decreased, while the demand for skilled workers increased.

What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?

The firm chooses to employ either labor or capital, depending on which factor is cheaper.

What is an example of the scale effect?

The firm expands output when production costs fall.

Compared to hiring a white worker, a discriminatory employer is $5 less happy when he hires a black worker and is $6 less happy when he hires a Hispanic worker. The firm faces hourly wage rates of $20 for whites, $16 for blacks, and $14 for Hispanics. Which of the following describes the firm's hiring decision?

The firm hires a mixture of white and Hispanic workers.

What is an example of the substitution effect?

The firm hires more labor when the wage falls because labor has become relatively cheaper compared to the price of other factors of production.

A firm owner wants a manager to make difficult personnel decisions when necessary (which requires firing a worker every now and then) in order to maximize the firm's profits. The manager, however, prefers to not fire anyone. The worker also prefers not to be fired. In this example, who is the principal and who is the agent?

The firm owner is the principal. The manager is the agent.

Which of the following does not describe a perfectly discriminating monopsonist?

The firm uses fewer hours of labor than it would if it were in a competitive market.

How does a profit-maximizing firm that is operating in a competitive labor market respond to an increase in the wage rate?

The firm will produce less output due to the scale effect.

What prevents a firm from offering a delayed-compensation scheme to its employees and then firing each worker when the worker's wage exceeds his or her value of the marginal product?

The firm would lose the trust of the workers, and new workers would not accept the payment scheme.

Which of the following is the most likely explanation for why Mexican immigrants earn 46% less than native workers while Canadian immigrants earn 36% more than native workers in the United States?

The immigrant flow is negatively selected from Mexico but positively selected from Canada.

Many immigrants and many American high school dropouts possess very few skills. What impact will these low-skill immigrants likely have on the labor market opportunities of American high school dropouts?

The immigration of low-skilled workers is associated with lower wages paid to American high school dropouts.

How does the income distribution in the United States compare to other developed countries?

The income distribution tends to be more unequal in the United States compared to other developed countries, but not by a huge amount.

Temporary layoffs are common in the United States, especially among workers who are heavily invested in specific training. Why?

The laid-off worker with specific training is more valuable to the firm that laid her off than she is to any other firm. Thus, it is in the worker's best interest to remain unemployed until recalled to work at her original firm.

According to the neoclassical model, what would not result from the government levying a tax on firms for each worker the firm lays off?

The long-run unemployment rate would decrease.

What is implied when the wage-schooling profile is drawn as a concave (i.e., increasing at a decreasing rate) function?

The marginal return to schooling is positive but falling as years of schooling increases.

What is the main selection issue researchers must address when trying to estimate the effectiveness of government training programs?

The most motivated unemployed workers are the ones who are also most likely to take advantage of government training programs.

Owners of men's clothing stores traditionally discriminate against males when making hiring decisions because they believe that male customers are more eager to buy clothing from female associates. In reality, however, one's sex does not affect one's sales (i.e., one's sex does not affect one's productivity). Discrimination of this sort throughout the labor market has resulted in clothing stores paying male associates lower wages than they pay female associates. A new men's clothing store enters the industry without these prejudicial beliefs. Which of the following outcomes is not likely to come about?

The new store will have to hire female associates to compete with its competition.

What is likely to happen to the labor market equilibrium for firemen as building codes change to require firewalls and sprinklers to be included in all new construction?

The number of firemen employed will decrease while firemen's wages will decrease

How does the presence of an underground labor market bias the government's calculation of the labor force participation rate?

The official government statistic on labor force participation is too low because people working in the underground labor market should be counted as being in the labor market and employed.

The market-clearing wage differential between a safe and risky job is $5000. Which of the following is not true?

The per-worker cost for any firm to change technologies to offer safe jobs in place of risky jobs is $5000.

Which of the following does not describe the historical patterns of unionization and strike activity in the United States?

The percent of public sector employees who are in a union remained relatively constant from 1950 to 2010.

Which of the following statements regarding the relative increase in the supply of high-skill labor in the United States since 1960 as measured by education level is not true?

The percent of workers without a high school degree has fallen dramatically since 1960. The percent of workers with a college degree has increased dramatically since 1960. The percent of workers with an advanced degree has increased dramatically since 1960. The supply of highly skilled women to the workforce has increased dramatically since 1960. All of the above statements are true.

What would a person do if the market wage is less than his or her reservation wage?

The person will not participate in the labor force.

Why is it that a firm will typically not pay for general training?

The skills gained from the general training are transferable to other firms.

The demand for firemen will remain unchanged as long as the property tax-base increases when the new construction projects are completed.

The supply of firemen will remain unchanged because the supply curve relates the number of firefighters to the wage, not to the number of fires

Which of the following is not an accurate summary of the equilibrium associated with a single competitive labor market?

The total firm surplus equals the total worker surplus.

Which of the following would not increase the asking wage?

The unemployment rate increases.

When the possibility of strongly efficient contracts occurs, what will happen?

The union and firm negotiate over the wage level but not over the employment level.

Which of the following is the best theoretical explanation for why strikes occur?

The union does not know how valuable labor is to the firm.

In the standard Roy model, migration can lead to an increase in average skills in both locations. What is necessary for this to happen?

The workers who migrate from the source country are below-average in skill relative to the average source country person but are above-average in skill relative to the average destination country person.

Which of the following statements regarding gender differences in international labor markets is true?

There is a sizeable wage gap between men and women in most developed countries.

Why do workers typically pursue their education while young?

There is more time to benefit from the higher wages that are typically associated with more education.

Which one of the following statements about piece-rate compensation schemes is false?

They are preferred by discriminatory firms.

Which of the following reasons is not a likely explanation as to why college completion rates are greater, on average, for whites than for blacks?

Tuition costs are lower for whites than blacks.

What is the best description of unemployment insurance benefits in the United States?

Unemployment benefits are a greater percentage of previous earnings for low-wage workers than for high-wage workers.

Why are high-power couples (i.e., both people have at least a college degree) more likely to migrate to large urban areas compared to low-power couples (i.e., neither person has a college degree)?

Urban areas offer a greater array of job opportunities and wages for educated people compared to rural areas and, therefore, living in an urban area reduces the likelihood of someone in a high-power couple being a tied-mover or tied-stayer.

Which is the distinguishing feature of the standard cobweb model?

Wages and employment levels adjust slowly over time.

Which one of the following statements regarding the intertemporal substitution hypothesis is false?

Wages and hours of leisure will tend to move together over the course of the life-cycle.

When the government imposes safety regulations on a particular job or labor market, what is most likely to happen?

Wages will fall but the utility will increase if workers misperceive on-the-job risk.

Which of the following is a positive rather than a normative question?

What effect does increasing welfare assistance by 20% have on female labor supply?

Which of the following has not been identified by research that tries to address the self-selection issue regarding the returns to schooling?

When both a high school graduate and a college graduate are placed in the type of job that high school graduates typically fill, the high school graduate would be more productive. When both a high school graduate and a college graduate are placed in the type of job that college graduates typically fill, the college graduate would be more productive. There are many kinds of abilities that are rewarded in the workplace. In general, workers appear to choose schooling amounts that maximize lifetime income. All of the above have been identified by the research on the returns to schooling.

If one looks at U.S. Census data and finds that the average white salary is $39,000 while the average black salary is $36,000, which of the following is not likely to be a significant cause of this difference given U.S. labor market demographics?

Whites are more inclined than blacks to work part-time.

What is the general relationship between race and unemployment rates in the United States?

Whites have the lowest rate of unemployment; blacks have the highest rate of unemployment.

If one looks at U.S. Census data and finds that the average male salary is $43,000 while the average female salary is $38,000, which of the following is not likely to be a significant cause of this difference given U.S. labor market demographics?

Women have less education than men.

How does the labor force participation rate of women compare to that of men in the United States?

Women participate less than men at all ages.

Which of the following is not true regarding the incentives different pay structures impose on workers?

Worker productivity is unrelated to the pay structure.

Assuming that workers are fully aware of their working conditions, which of the following will not happen when the government mandates pollution control to protect workers' health?

Worker utility will increase.

Standard economic theory suggests which of the following in terms of labor migration across states in the United States?

Workers are likely to migrate from low-wage states to high-wage states.

Which of the following is not a reason why the labor market experiences job turnover?

Workers differ in their abilities. Firms differ in their amenities and working conditions. Economic conditions can dictate that a firm reduces its number of workers. Workers might want to change jobs after accumulating general training or education. All of these are reasons why the labor market can experience job turnover.

Which of the following is the main argument for why efficiency wages can help encourage workers to provide full effort on a job?

Workers do not want to risk becoming unemployed when there is a reserve of involuntary unemployed workers willing to take their job that pays above the competitive wage.

What is a possible explanation as to why workers who have been on the job for a long time earn more than newly hired workers?

Workers in long-lasting job matches accumulate specific training over time, which increases the workers' productivity.

Selection bias is a problem when trying to estimate the return to education in a standard human capital model. In this context, what does selection bias refer to?

Workers self-select education levels and jobs based on their abilities and preferences.

Which one of the following statements regarding job turnover in the U.S. labor market is false?

Workers who have a lot of seniority are likely to switch to a different firm when their wage-age profile begins to flatten out.

When the labor force participation rate falls, the average wage in the economy is likely to increase. Why?

Workers who have the worst wage options are those most likely to leave the labor force.

Why is it hypothesized that the slope of the age-earnings profile is likely steeper for workers who remain with their job (i.e., job stayers) compared to workers who experience job separation (i.e., quits and layoffs)?

Workers with a longer tenure at their current firm have invested more in valuable firm-specific training.

Suppose a firm overpays its workers at the start of the job, and then the firm slowly lowers wages over time until eventually the firm pays the workers considerably less than the worker's marginal product of labor. What prevents this "reverse of a delayed-compensation scheme" from being implemented?

Workers would leave the job as soon as the firm tried to pay the worker less than his or her value of the marginal product.

All of the following represent an increase in non-labor income except

a decrease in the income tax rate.

Labor demand is more elastic the greater the elasticity of substitution between labor and capital because

a firm is less willing to pay higher labor costs if it is easy for the firm to substitute capital for labor.

Who is not counted in the U.S. labor force?

a full-time college student

Which of the following is least likely to affect the net gain to migration?

a general increase in the national price level

Which of the following is a sign of a well-functioning labor market?

a high degree of labor mobility (job losses and job gains)

Which of the following is least associated with union jobs and contracts?

a large population of immigrant workers

If the minimum wage applies to one sector (the covered sector) but not another sector (the uncovered sector), an increase in the minimum wage in the covered sector is likely to result in which of the following?

a lower wage in the uncovered sector

In a discrimination model, nepotism is best described as

a preference to hire a certain type of worker, for example, a worker of one's same race.

An efficiency wage is defined as

a wage above the competitive wage that elicits greater effort on the part of workers.

Labor market equilibrium is best characterized by

a wage at which the number of people willing to work equals the number of workers firms are willing to hire

One argument against using a profit-sharing scheme is the potential for free-riding. In this situation, free-riding refers to

a worker not providing effort because his contribution to profit is very small.

The general consensus from analysis of the Tennessee Student/Teacher Achievement Ratio (STAR) experiment suggests that students assigned to small classrooms of 13-17 students, compared to other students assigned to classrooms of 22-27 students, experienced

an increase in both academic achievement and college attendance.

Which of the following would result in a short-run increase in the wage rate in a competitive labor market?

an increase in the output price

The wage-employment outcomes described by the contract curve

are Pareto optimal and result in an efficient contract.

Risk-averse workers

are willing to accept large wage decreases in exchange for a safer work environment.

The labor demand curve shows how many workers the firm is willing to hire

at any given wage

The labor supply curve shows how many workers are willing to work

at any given wage

A piece-rate compensation system

attracts and benefits the most able workers.

One implication of the theory of compensating differentials is that jobs in states with high-income tax rates are likely to

be associated with more fringe benefits.

The intertemporal substitution hypothesis suggests that hours of work should

be greatest during peak wage years.

In the United States from 1950 to 2000, it was most likely that an unemployed person would

be re-employed in less than 5 weeks.

Over the last 30 years in the United States, the black-white earnings ratio for women has ________ and for men has ________.

been relatively flat; steadily increased

A strike

can be a rational response during the union-firm negotiation process.

Which is not a decision made by potential workers in the United States?

choosing how much to produce to maximize a firm's profit

A firm's demand for labor is derived in part from

consumer demand for the firm's product

Labor economists sometimes refer to labor demand as "derived" demand. In this context, where does "derived" come from?

consumer demand for the firm's product

Which of the following is not a leading actor in labor markets?

consumers

The imposition of a minimum wage on a competitive labor market will likely

create unemployment as some people enter the labor market while some firms reduce the quantity of labor they are willing to employ due to the increased wage.

There is a restaurant that employs only males to serve guests, only females to tend the bar and a mix of male and female cooks and dishwashers. The dishwashers and cooks never come in contact with the customers. This hiring pattern is most indicative of ________ discrimination.

customer

Due to the discouraged worker effect, the labor force participation rate

decreases during a recession.

Which of the following causes a difference in wages but does not necessarily qualify as discrimination?

differences in schooling differences in skills differences in experience differences in language All of the above lead to differences in wages but none of them necessarily qualifies as discrimination.

If the intertemporal substitution hypothesis is correct, then

discouraged workers should not be included in the unemployed population because they are optimally choosing more leisure during a time of low wages.

The short-run Phillips curve is ________, while the long-run Phillips curve is vertical at the ________.

downward sloping; natural rate of unemployment

A firm that discriminates against black labor will

earn less profit than it could earn if it did not discriminate.

The slope of the wage-schooling locus provides an estimate of the

economic return to an additional year of schooling.

Wage differentials across individual workers are determined in part by

effort. productivity. social capital. luck. All of these are determinants of wage differentials.

An outward shift in the labor demand curve implies that

employers are now looking to hire more workers at any given wage

Piece rates typically

encourage greater effort from workers.

When a firm pays higher wages, it is likely that doing so will

encourage workers to stay on the job for a long time.

What is the stopping rule for choosing one's years of schooling?

end one's schooling when the rate of return to one more year of schooling equals the worker's rate of discount

The assumption that a firm operates in a competitive labor market means that the firm

faces a constant wage regardless of how much labor it employs.

The production function relates

factors of production to total output.

The United States funds its unemployment compensation system by taxing

firms more when they have a history of causing more layoffs, up to a point.

Compared to the labor market outcome when there are no payroll taxes, imposing a payroll tax on labor will typically result in

firms paying a higher wage. workers receiving a lower wage net of taxes. a decrease in overall employment. an increase in deadweight loss. All of these are possible outcomes.

Yellow-dog contracts give

firms the right to require a worker to not join a union as a condition of employment.

Middle-aged workers being paid more than their younger counterparts is likely due to

firms using a delayed compensation scheme.

Higher values of the Gini coefficient are associated with

greater income inequality.

The female-male wage gap in the United States

has been decreasing over the past 30 years.

Compared to older workers with several years of experience with one firm, newly hired young workers typically

have a higher turnover.

Twin studies are helpful in producing an unbiased estimate of the returns to schooling because twins are likely to

have similar abilities.

Which of the following is not likely to prevent some people from migrating?

having a lucrative job offer in a different city

Which of the following do unions usually advertise to their members and potential members?

high wages steady employment better fringe benefits a powerful political lobby All of these are used for advertising to members and potential members.

The data suggest that wages increase more with age for the highly educated compared to the less educated. This is evidence that

highly educated people also invest more in post-schooling human capital compared to the less educated.

A profit-maximizing monopsonist

hires fewer workers and pays its workers less than it would if it were operating in a competitive labor market.

Any economic model should be judged primarily on

how accurately its predictions match observed behavior

Labor economics concerns

how labor markets work the study of education decisions the study of how households decide where to live the study of income inequality All of these are labor economics concerns

The supply curve of labor to risky jobs reveals.

how many workers are willing to offer their labor to the risky job as a function of the wage differential between the risky job and the safe job.

Negative selection in a migration model means that

immigrants from the source country are not highly skilled relative to labor in the destination country.

According to the substitution effect, in response to an increase in her wage, a person will

increase hours worked because leisure has become relatively more expensive than consumption.

Labor force participation rates tend to

increase with education level for both men and women.

From 1980 to 2012, the black-white wage ratio for males in the United States

increased modestly from 0.7 in 1980 to about 0.8 in 2012.

Due to the added worker effect, the labor force participation rate

increases during a recession.

Large disparities in wages could possibly result from all but which one of the following?

increases in the number of middle-class jobs

Compared to a labor market that has no unemployment benefit system, the unemployment insurance system of the United States probably

increases the unemployment rate.

The Earned Income Tax Credit is a federal program that

increases wages for the working poor.

Union organizing drives will be more successful in firms that have relatively ________ labor demand curves.

inelastic

A union will be more successful at forming when the firm's labor demand curve is inelastic because under these conditions the union organizers can "promise"

large wage gains with minimal employment losses.

Discrimination in the workforce

leads to inefficiency.

What is an example of general job training?

learning how to use a forklift learning how to weld reading a book on techniques for managing large groups of workers involved in team projects attending an industry convention on "best practices" All of these are examples of general job training.

What is an example of specific job training?

learning how to use the firm's payroll system

The correlation between wages and the probability of encountering a fatal injury while on the jobs can be used to calculate the value of

life

What does not enter into the present value calculation of a college degree?

lifetime wages of noncollege graduates

Customer discrimination results in

lower wages for the discriminated against worker group.

Cross-sectional analysis of age-earnings profiles of natives and immigrants in the United States tends to reveal that immigrants earn

lower wages on average than natives at young ages but earn about 10% more than natives by age 45 and thereafter.

Under normal circumstances, the equilibrium compensation wage differential is the wage differential that exactly attracts the

marginal worker into a risky job.

The cost of offering safe versus risky jobs in the highway construction industry varies across firms. In the end, we would expect the market equilibrium to

match workers who dislike risk to firms that find it cheapest to offer safe jobs.

One possible measure of gender discrimination is to look at the difference between the average male wage and the average female wage. This is a poor measure of discrimination for all of the following reasons except that men and women

may differ in the return they receive for their skills.

When forming theories, economists must be careful to

mirror the real world as realistically but as simply as possible

An important development during the Great Recession (2007-2009) was that

more than 50 percent of all unemployed workers remained unemployed for 13 to 26 weeks.

An upward-sloping labor supply curve implies that

more workers are willing to work as the market wage increases.

The imposition of an effective minimum wage in a non-competitive industry might result in

more workers being hired.

If immigrant workers are complementary to native workers, then

native workers will be better off with open borders.

The equilibrium of a competitive labor market is associated with

no unemployment as everyone who wants a job at the equilibrium wage has one.

The reservation wage likely increases when

non-labor income increases.

What type of questions cannot be answered with theory or facts alone?

normative questions

The empirical and theoretical results on occupational crowding in the United States suggest that

occupational crowding is substantial in the United States, and much of this should be thought of as a source of discrimination.

If the ability is positively related to schooling, then estimating the returns to education directly from the wage-schooling profile will likely

overestimate the return to schooling.

The cross-elasticity of labor with respect to capital is the

percent change in labor relative to a percent change in the price of capital.

The elasticity of substitution is the

percentage change in the capital/labor ratio resulting from a 1-percent change in the relative price of labor to capital.

The idea of linking public school teacher salaries to student outcomes is basically an attempt to impose a ________ compensation scheme on teachers.

piece rate

What type of questions can be answered with economic tools without interjecting any value judgment as to whether the particular outcome is desirable or harmful?

positive questions

Present value calculations allow one to determine the

present-day costs and/or benefits of various options.

In a basic model of wage and employment determination with a monopoly union, the monopoly union stipulates the wage. The firm then responds by choosing an employment level that maximizes

profit.

Which of the following is not likely to help a firm motivate its workers to put forth more effort?

providing a free or subsidized company gym and/or cafeteria installing monitoring equipment providing competitive year-end bonuses implementing a profit-sharing scheme All of these are likely to motivate workers to put forth more effort.

If labor supply is perfectly inelastic, the imposition of a payroll tax legislated to be paid by firms will do all of the following except

reduce total output.

If designed correctly, tournaments

reward players according to their ranked productivity.

Anna works on a farm every spring during planting season and every fall during the harvest season. The farm fails to employ Anna during the summer or the winter. What type of unemployment does Anna experience?

seasonal unemployment

The government is a player in the U.S. labor market in part because the government

sets workplace safety rules and regulations

When considering the running of a corporation, there is a principal-agent problem between shareholders and the CEO because

shareholders cannot observe all of the CEO's decisions.

An increase in non-labor income while holding the wage rate constant

shifts the budget line up while maintaining the same slope.

The Human Resources department at a firm has two job candidates for one position. Both candidates went to the same college, took the same classes, and have the same academic record. They both performed well in the interview and said that they see the job as a long-term position. One applicant is male; the other is female. Historically within the firm, women quit their jobs at higher rates than do men. Because of this, the firm fills the position with the male candidate. What kind of discrimination is this?

statistical discrimination

The Hicks Paradox concerns the irrationality of

strikes.

James is currently unemployed. He is disappointed every Sunday when none of the job advertisements in the newspaper are for workers with his particular skill set. What type of unemployment is James experiencing?

structural unemployment

Empirically, women who are married to a spouse who has access to health insurance earn higher wages and are less likely to be offered employer-sponsored health insurance than are married women whose spouse does not have access to health insurance. This pattern

supports the theory of compensating differentials as it indicates there is a trade-off between wages and benefits.

Labor unions in the United States today

tend to be less influential compared to labor unions in other developed countries.

The Mincer earnings function is used to estimate

the age earnings profile.

Principal-agent problems arise when

the agent's objectives are different from the principal's objectives.

In an econometric model, the dependent variable is

the behavior one is trying to explain

When the government mandates that firms supply a particular benefit, it is usually the case that

the cost of providing the benefit is less than the worker's value of the benefit. employment will increase. the wage will increase. the wage will decrease by more than the cost of providing the benefit. the wage will decrease by less than the cost of providing the benefit.

If unskilled labor and capital are substitutes,

the cross-elasticity between unskilled labor and capital is positive.

An actual Lorenz curve shows

the cumulative share of income earned by quintiles of households.

What does the Gini coefficient measure?

the degree of inequality in an income distribution

What is the most accurate description of the value of a worker to the firm?

the dollar value of the worker's output

The single most important phenomenon in the U.S. labor market in the second half of the twentieth century was

the drastic increase in the labor force participation rate of females.

When plotting log wages (y-axis) against years of schooling (x-axis), the slope of the regression line indicates

the economic return to each additional year of schooling measured in percentage terms

When the government imposes a payroll tax on workers,

the effects are identical to the effects had the government imposed the tax on employers.

In the United States, the federal minimum wage is legislated in nominal terms. This means that

the federal minimum wage historically decreases in value during stretches when the minimum wage is not increased.

Holding all else fixed, the greater is one's discount rate,

the fewer years of schooling one completes.

To pay piece rates in order to elicit effort, it must be the case that

the firm can monitor individual worker output.

A perfectly discriminating monopsonist pays each worker his or her reservation wage. This results in

the firm receiving all of the surplus.

Labor demand is more elastic the greater the elasticity of demand for the firm's output because

the firm would see its quantity demanded fall substantially if the firm tried to pass increased labor costs through to the consumer by increasing the price of the output good.

Labor demand is more elastic

the greater is the supply elasticity of capital. the greater is the elasticity of substitution between labor and capital. the greater is the elasticity of demand for the firm's output. the greater is labor's share in total costs. All of the statements are correct.

Assuming consumption and leisure are both normal goods, hours worked will fall when the wage increases if

the income effect dominates the substitution effect.

If the labor supply of unskilled workers is perfectly inelastic, then

the labor supply curve of unskilled workers is vertical at the total number of unskilled workers in the market.

In a non-competitive labor market, the firm pays a wage that is less than the workers' value of the marginal product because

the marginal cost of labor curve is above the labor supply curve.

The law of diminishing returns, as it applies to labor, means that

the marginal product of labor eventually declines.

The slope of the production function while holding capital fixed is

the marginal product of labor.

In order for the compensating differential associated with a risky job to be negative (so that a risky job pays less than a non-risky job), it must be that

the number of risky jobs is less than the number of workers who prefer a risky job.

As the interest rate increases,

the present value of future benefits decreases.

Which of the following affects a person's decision to work?

the price of consumption goods relative to the wage the person's income from non labor sources how much the person enjoys working the amount of fringe benefits offered to the person All of the above affect a person's decision to work

Which of the following affects the wage a firm is willing to pay its workers?

the productivity of workers consumer demand for the goods and/or services that the firm creates the amount of fringe benefits the firm is required by law to pay the level of payroll taxes the firm must pay All of the above affect the wage a firm is willing to pay its workers

A standard hedonic wage function might show what relationship?

the relationship between the wage and the probability of injury faced by the worker

In the case of a vertical contract curve, union negotiations will result in the firm hiring

the same number of workers but at a higher wage than it would in the absence of the union.

In order to use schooling as a signal,

the signal must be costlier for low-skilled workers than for high-skilled workers. the cost of purchasing the signal must not be so costly that high-skilled workers do not value obtaining it. firms must be able to easily verify each worker's amount of schooling. some people must choose to not complete schooling. All of these are required for schooling to serve as a signal.

The marginal rate of technical substitution at any particular labor-capital bundle is

the slope of the isoquant.

In the context of intergenerational inequality, regression toward the mean is captured by which of the following?

the tendency for income differences across families to get smaller over time as the various families move toward the mean income of the population

The Phillips Curve relates

the unemployment rate to inflation.

Featherbedding refers to

the union requiring the firm to hire more workers than are actually needed to perform a particular task.

The perceived cost of hiring a black worker for an employer who is prejudiced against blacks will exceed

the wage of blacks.

When a worker and firm are matched on the hedonic wage function, it is implied that

the worker-firm match is efficient in the sense that neither the worker nor the firm could become better off with a different match.

People decide how much schooling to receive based on

their discount rate. the marginal rate of return to schooling. the present value of expected future earnings. their ability to succeed in education programs. All of the above factors influence how much schooling one receives.

The sectoral shifts hypothesis claims that

there will always be a pool of unemployed workers who experience long spells of unemployment because their skills do not match those that employers are looking for (i.e., the structurally unemployed).

What does it mean to conduct a sequential search?

to determine an asking wage and then accept the first job offer that pays a wage equal to or greater than the asking wage

Consider a labor market with two sectors—a union sector and a non-union sector—with perfectly inelastic labor supply. The presence of the union sector causes all of the following results except:

total surplus added between the union sector and the nonunion sector is the same as total surplus when there is no union sector.

In the standard model of a monopoly union bargaining with the firm, it is typically assumed that

unions are willing to trade off some amount of employment for higher earnings.

The equilibrium hedonic wage function is most likely

upward sloping as firms that offer riskier jobs usually pay higher wages.

The wage-schooling locus is

upward sloping because education is generally productive.

If the supply of unskilled domestic labor and the supply of unskilled immigrant labor are both perfectly inelastic, then the typical market equilibrium will be such that

wages paid to unskilled domestic labor will be less under immigration than under no immigration.

The value of life is calculated by comparing

wages to risk levels.

The general schooling model predicts that schooling increases

when the ability is held constant and the discount rate increases.

At what point should a firm stop hiring workers?

when the firm's marginal profit from hiring an additional worker equals the cost of hiring that worker

A firm has the choice of offering "dirty" jobs that are likely to cause severe health problems for its workers or of offering "clean" jobs by installing safety equipment at a cost of $5 per hour per employee that will substantially reduce the chances of health problems. The firm will

willingly install the safety equipment if workers are willing to be paid $7 per hour less in a clean job than in a dirty job.

A firm that finds it extremely expensive to monitor the output of each worker will likely pay its workers

with time rates.

Occupational crowding refers to

women being intentionally segregated into particular occupations.

According to the income effect, an increase in the wage rate will lead the worker to

work fewer hours if leisure is a normal good.

A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As a result, firm profits increase and there is a pool of involuntarily unemployed workers. This equilibrium comes about in part because

workers are less likely to shirk when there is a pool of unemployed workers who are willing to take their job.

Having the government regulate workplace safety would most likely improve economic efficiency if

workers are unable to correctly judge the risk associated with a particular job.

Which of the following would prevent a single equilibrium wage existing across all labor markets?

workers having various skills and preferences

If the U.S. system of unemployment insurance did not exist, one would predict that

workers in jobs that face seasonal cycles of unemployment would be paid higher wages.

The bonding critique criticizes the model of efficiency wages because

workers should be willing to give the firm collateral that the firm would keep if the firm ever caught the worker shirking, and in exchange the worker would be willing to work for a wage less than the efficiency wage.

Right-to-work laws give

workers the right to not join a union.

At a wage of $25 per hour, the firm employs 50,000 hours of labor per week. If the wage would increase to $27 per hour, the firm would employ 45,000 hours of labor per week. What is the elasticity of labor demand?

−1.25