ECON 480 Final Study

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

A full time college student.

Why might people choose to go to college?

All of these options are reasons people might choose to go to college.

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.

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

Most workers earn below the average wage.

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.

What is an example of the scale effect?

The firm expands output when production costs fall.

Temporary layoffs are common in the United States, especially among workers who are heavily invested with 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.

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.

The general schooling model predicts that schooling increases

when ability is held constant and the discount rate increases.

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

A hedonic wage function could be applied to which of the following job characteristics? (Select all that apply.)

A. the degree to which a job involves monotonous work B. the degree to which a job involves strenuous work C. the degree to which the area surrounding the job location is safe D. the probability of being injured on the 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 causes a difference in wages but does NOT necessarily qualify as discrimination?

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

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

All of these are possible outcomes.

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.

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.

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.

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.

Which statement about human capital is false?

Human capital has a low rate of return.

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?

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

Which of the following is NOT a property of standard indifference curves in a leisure-consumption model?

Indifference curves intersect one another.

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.

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.

The reservation wage likely increases when

Nonlabor income increases

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

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

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.

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.

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 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.

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 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.

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.

Suppose there is currently positive selection of immigrants to the United States. What would happen to immigration to the United States if the return to skills were to fall in the United States?

The selection would remain positive, but the average skills of immigrants would increase.

Which of the following would NOT increase the asking wage?

The unemployment rate increases.

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 is NOT an accurate summary of the equilibrium associated with a single competitive labor market?

Total firm surplus equals total worker surplus.

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 of the following statements about unemployment that is indicative of sectoral shifts hypothesis is NOT correct?

When an industry experiences a negative shock, those workers who become unemployed will eventually become employed in new industries when the new industries adjust their needs to the existing skills of the unemployed.

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.

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

a general increase in the national price level

Estimates of the compensating wage differentials associated with particular job characteristics are valid only if

all other factors that influence worker's wages are held constant.

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

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

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

an increase in native labor supply

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.

Suppose the distribution of innate ability is distributed symmetrically throughout a population but that the wage distribution is positively skewed. What most likely explains this?

differences in human capital accumulation.

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

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

economic return to an additional year of schooling.

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.

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

increases during a recession.

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.

Discrimination in the workforce

leads to inefficiency.

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.

The equilibrium of a competitive labor market is associated with

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

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 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 Mincer earnings function is used to estimate

the age earnings profile.

If unskilled labor and capital are substitutes,

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

When the government imposes a payroll tax on workers,

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

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.

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

the income effect dominates the substitution effect.

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 nonrisky job), it must be that

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

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.

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

the wage will decrease by less than the cost of providing the benefit.

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.

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.

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

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