Employment
The marginal product for any worker is the difference between the total product when that worker is employed _______ the total product when one less worker is employed.
Minus
Suppose an identical tax is levied on capital, labor, and land. Would the tax have the same effect in each of these markets? Explain your answer.
No, an identical tax would yield similar effects but not the same effects, since it is rather unlikely that the relative demand and supply elasticities would be the same in each market.
All of the following are reasons for compensating wage differentials except:
No: educational levels Yes: unpleasant working conditions. significant mortality rates. high housing costs.
In equilibrium, an optimal mix of production factors is achieved when:
the marginal product from the last dollar spent on each input is equalized
In a competitive labor market, the profit-maximizing number of workers that a firm will hire occurs where the ____________.
value of marginal product of labor is equal to the market wage.
The value of the marginal product of the tenth worker hired by a firm is $50. What is the maximum wage that should be paid to the worker?
$50
If you were to add a binding minimum wage to the adjacent graph it would be represented as _______. A binding minimum wage will ______ the marginal product of labor.
1. A horizontal line above point c 2. Increase
The labor demand curve will shift as a result of:
1. Changing output prices 2. Changing demand for the output good 3. Changing technology 4. Changing input prices Change in wage will not cause a shift.
Factors that cause the labor supply curve to shift include: Which of the following best explains why the labor supply curve slopes upward?
1. Changing tastes regarding employment 2. Changes in population 3. Changing opportunity cost of time When wages increase, the opportunity cost of not working increases, leading people to seek more work hours.
Structural unemployment can be caused by ____________.
1. Collective bargaining rights of workers 2. Minimum wage laws A and B only
Suppose the local pizza restaurant wants to hire another delivery driver to replace the worker who recently quit. The former worker could make 40 deliveries per week. The restaurant has received three applications from equally qualified workers. If it hires any one of these workers, it could boost deliveries by 30 deliveries per week. If each of these applicants is capable of boosting deliveries by 30 per week, what would happen to deliveries if the restaurant hired all three of the applicants? Firms should hire workers until the ____________. The labor demand curve shows the quantity of labor demanded will increase as_______________.This results in a labor demand curve that is _____________.
1. Deliveries would increase by less than 90 per week, since there will be diminishing marginal product of labor. 2. value of the marginal product of labor is at least as great as the wage paid. 3. wages decrease, downward-sloping
The Patient Protection and Affordable Care Act (ACA) requires all employers with at least 50 full-time equivalent workers to offer health insurance to their full-time employees or pay a fine of up to $2,000 per employee. Some people have argued that ACA will lower employment. This problem looks at an important issue in this debate. Suppose the government passes a law that requires firms to offer health insurance to their workers. The cost of the insurance is equal to $1 for each hour an employee works. How will this law affect firms' demand for labor? Suppose workers consider a dollar of health insurance paid by firms to be the equivalent of $1 in wages. How will this law affect the supply curve of labor? Now suppose workers consider a dollar of health insurance paid by firms to be worth less than $1 in wages. How will this law affect the equilibrium quantity of labor in this labor market? How will it affect the equilibrium wage in this industry?
1. Demand for labor will shift down by $1. 2. Supply of labor will shift down by $1. 3. The equilibrium wage and quantity both decline, with the wage declining less than in the previous case where workers consider the insurance to be the equivalent of $1 in wages.
The demand curve is downward-sloping because marginal productivity ______ as more workers are employed, while the supply curve is upward-sloping since an increase in the wage increases the opportunity cost of ________. .
1. Falls, leisure
In February 2014, the United States added 175,000 jobs to the economy. Given this information, what can we say about the unemployment rate of the country? Suppose that in January there were 5,000,000 workers in the labor force, with 4,670,000 employed and 330,000 unemployed, implying a 6.6 percent unemployment rate. A month later, there were 5,170,000 workers in the labor force, with 4,845,000 employed and 325,000 unemployed. (Notice the number employed went from 4,670,000 to 4,845,000, an increase of 175,000.) The unemployment rate in February is ______%.
1. It may increase, decrease, or not change depending on how many people started searching for jobs during the month. 2. 100 X Unemployment ------------------ Labor Force
The Table Problem
1. Labor Force Participation Rate = 100 X Labor Force ------------------- Potential Workers 2. Labor Force = Potential Workers - Not in Labor Force 3. Not In Labor Force = Potential Workers - Labor Force 4. Employed Workers = Labor Force X (Unemployment Rate/100). Then subtract that number from Labor Force. 5. Potential Workers = Labor Force + Not in Labor Force 6. Unemployment Rate = Labor Force - Employed Workers. Then divide that number by Labor Force, then X 100.
Because this firm is competitive and has no control over its product's price, the declining values for VMPL are a result of diminishing __________. When the VMPL is plotted in a diagram with the number of workers measured along the horizontal axis, the resulting curve (connecting the plotted points) is the firm's ______________.
1. Marginal productivity 2. Demand for labor
The demand curve slopes downward because ________ productivity falls as more workers are employed. The supply curve slopes upward since the opportunity cost of leisure _______ following an increase in the wage.
1. Marginal, rises
Which of the following people are counted as potential workers? Which of the following would be classified as unemployed? The labor force equation is equal to the number employed ________ the number unemployed.
1. People who are already employed full-time. 2. Someone who is not working and looked for work two weeks ago. 3. Plus
The Marginal Product Graph Suppose that, at your firm, the relationship between output produced and the number of workers you hire is as in the following table. Complete the table by computing the marginal product of labor for each worker. (Enter your responses as integers.) Is the relationship between output and labor consistent with the Law of Diminishing Returns?
1. See in difference in decrease of the Marginal Product as more Labor is hired. 2. Yes, the marginal product declines as successive units of labor are hired.
In the taxi cab industry, the salary for male drivers is higher than for female drivers. A company has an opening for an accountant and one of the requirements is that the candidate should be a woman younger than 30 years old. Robert, the son of a famous actor, starts his acting career as the lead in an upcoming Hollywood psychological thriller movie, without auditioning. Ted and Marshall have applied for a job at a video game development company as a graphic engineer. Which of the following is an example of a skill-biased technological change?
1. Statistical 2. Taste 3. Tase 4. Ted, a recent graduate who has won many software development competitions is chosen over Marshall who has worked on a particular software at an IT company for 15 years.
_________ occurs when people's preferences cause them to discriminate against a certain group. ____________ occurs when expectations cause people to discriminate against a certain group.
1. Taste-based discrimination 2. Statistical discrimination
The graph on the right shows a labor market that is initially in equilibrium. The market then experiences a shock to labor demand. Suppose the market is initially in equilibrium at E1, where the labor supply curve intersects the "Old labor demand" curve. A shock to the market causes the labor demand curve to decrease to "New labor demand." If wages are completely flexible and can adjust freely and quickly, what would be the change in employment caused by the shock to labor demand? If wages, instead, face downward wage rigidity and remain at $5.50 per hour, what would be the change in employment caused by the shock to labor demand? The shock to labor demand has a more detrimental impact on employment when the wage rate is__________.
1. The labor market would move from E1 to A, which would result in a decrease in employment of 1.5 thousand workers. 2. The labor market would move from E1 to E2, resulting in a decrease in employment of 3 thousand workers. 3. Rigid Downward
In the United States in 2011, there were 104 fatalities per 100,000 workers in the logging industry. This is the second-highest rate after the fisheries industry. Everything else equal, would you expect workers in the logging industry to be paid higher wages than workers with similar levels of education in other industries? Explain.
1. Yes, loggers should be paid higher wages to compensate for risk.
When it comes to determining the appropriate quantity of physical capital to use, the firm employs a decision rule that is conceptually _______ the approach it takes in choosing the number of workers to hire. A firm will employ physical capital until ____________.
1. identical to 2. The value of marginal product of capital (VMPK) equals the rental price of capital.
The BLS officially classifies a person as being employed _____________. Potential workers are classified as being unemployed when ____________. The equation for the labor force participation rate is defined as ____________.
1. if that person holds either a part-time or full-time paid job. 2. they do not have a paid job, have looked for work in the previous 4 weeks, and are available for work. 3. 100% X Labor Force -------------- Potential Workers
The value of the marginal product of labor is the ____________. Anthony owns a landscaping business that has 4 employees. His company is able to earn revenue of $600 per day. He knows that if he hires another worker, he would have to pay that worker $50 per day and the company would earn revenue of $680 per day if the new worker is hired. Determine the value of the marginal product of labor of the employee that Anthony is considering hiring.
1. market value of a worker's additional output for a firm. 2. $80
A production function shows ____________. According to the Law of Diminishing Returns, ____________.
1. the number of workers employed and the corresponding output levels that will be produced 2. the marginal productivity of an additional unit of labor eventually decreases as the quantity of labor increases
Which of the following is an example of what economists refer to as job search? What type of unemployment does job search lead to?
A. People that engage in the job hunt by sending out resumes. B. A person who applies for a high-paying job but does not qualify, so she begins searching for an appropriate position. C. An individual that engages in the job hunt by determining who is hiring and how much they pay. All of the Above 2. Frictional unemployment.
How does the market for inputs like labor differ from the market for goods and services?
A. The demand for inputs is derived from the demand for final goods and services. B. Firms are sellers in the market for goods and services, while individuals are sellers in the market for inputs. C. Firms are buyers in the market for inputs, while individuals are buyers in the market for goods and services.
Firms estimate the demand for labor by ____________.
A. determining the value of marginal product of labor (VMPL). B. computing the marginal product of labor and multiplying it by the price of the product being produced. A and B only
Frictional unemployment can result when ____________.
A. it takes time for firms to find applicants with the right skills and experience. B. firms and workers have imperfect information about each other. C. it takes time to find what jobs are available in a specific field.
As the wage rate increases, the ________, assuming all else equal.
quantity of labor supplied increases
The period from 2007 to 2009 was a time of economic contraction that came to be known as the "Great Recession." During periods of recession, most firms experience a decline in demand for their product, as well as a decline in the product's equilibrium price. All other things being equal, macroeconomic theory predicts that the wage of most workers should decline in recessionary periods. However, this was not the case in the Great Recession, or during many other economic downturns throughout recent history. Based on the discussion in the chapter, explain why this might be so, and what the implications are for unemployment.
During downturns workers are resistant to the lowering of wages and firms try to avoid doing so. This downward wage rigidity keeps the quantity of labor supplied greater than demand, causing unemployment.
All of the following statements are true of a labor supply curve except:
False: It is downsloping due to the income effect. True: Higher wages increase the opportunity cost of leisure. It is upsloping due to the substitution effect. The market supply of labor curve is plotted to the right of the individual supply curves.
Suppose wages in the market for plumbers increase. Some plumbers start taking on extra plumbing jobs while others cut back on the number of hours they work. What could explain this?
For those plumbers who choose to work more, the substitution effect (on leisure) of the wage increase is stronger than the income effect. For those who decided to work less, the reverse is true.
Scenario: Jim, Pam, Michael, and Angela all worked for a paper company until the company went out of business. Jim was a salesman, Pam was a receptionist, Michael was the manager, and Angela was an accountant. Once the company went out of business, they all had to look for and consider other work opportunities. While these individuals are looking for other work, what type of unemployed are they?
Frictionally unemployed
Frictional unemployment is the unemployment that arises____________.
From workers imperfect information about available jobs.
Which of the following groups of people would not be considered employed?
Housewives raising kids at home
Now if the firm is also a perfect competitor in the output market, then the value of marginal product of labor (VMPL) is found by multiplying the marginal product of each worker by the product's _______.
Price
Which of the following is not true regarding the natural rate of unemployment?
The natural rate of unemployment is 0 percent when the U.S. economy is not in a recession.
In April 2012, the Bazanian Daily, a leading newspaper in the country of Bazania, carried a report titled "20,000 jobs added in the last quarter; unemployment rate shoots up from 5 percent to 6.7 percent." How could the unemployment rate in Bazania increase even when new jobs were created?
The new jobs may have made discouraged workers optimistic enough to start applying for jobs, thus re-entering the labor force and being counted as unemployed, which causes the overall unemployment rate to increase.
Which of the following statements is true?
There always exists some amount of unemployment in an economy.
What will happen to the demand curve for workers in steel mills if some technology that increases their productivity is introduced, assuming all else equal?
There will be a right shift of the demand curve for the workers.
The graph on the right shows a labor market in equilibrium. The equilibrium wage is $10 per hour. At this wage, there are people who are not working, which is represented by the segment of the labor supply curve above the equilibrium wage. Why are these people not working in this market?
These people are only willing to work for wages above the market-clearing wage.
The labor demand curve represents the relationship between the quantity of labor demanded and the ________.
Wage
In a recent study for the National Bureau of Economic Research (NBER), four researchers looked at the effect of generous unemployment benefits on the local unemployment rate. They compared the unemployment situation in adjoining counties, which happened to lie in two different states that had different laws regarding the amount and duration of unemployment benefits. (Re-read the section on "A Natural Experiment of History" in Chapter 8 of the text to understand how the NBER research is based on a "natural experiment.") The authors of the NBER study found that the unemployment rate "rises dramatically in the border counties belonging to the states that expanded unemployment benefit duration" during the Great Recession. Why might this be so?
With the longer duration of unemployment benefits, firms needed to keep wages high to attract people to work. This caused downward wage rigidity, leading to persistent higher unemployment.
The goal of a country with a healthy economy is to have ____________ equal to zero.
cyclical unemployment.
Workers who are unemployed but are not actively looking for jobs are referred to as ________.
discouraged workers
Explain whether each of these individuals will be counted as a part of the labor force. Alex has not responded to interview requests from banks but applied to be a realtor last week. John left his full−time job as a teacher and now works part−time at the library. We know that Alex is ____________, and we know that John is ____________.
in the labor force, in the labor force.
Any change that causes a decrease in the demand for labor at a given wage rate will be represented by a(n) ________ the labor demand curve, assuming all else equal.
left shift of
Profit-maximizing firms that are perfect competitors in the labor market can employ as many workers as they wish at the market wage. As a result, they will employ labor up to the point where the wage rate equals the value of the __________ of labor.
marginal product
The size of the labor force in a country is equal to the ________.
number of employed workers plus the number of unemployed workers in the country
The graph on the right shows the demand for and supply of labor in a market with an equilibrium wage rate of $7 per hour. Show the impact on the graph if a minimum wage of $9 per hour is enacted. According to the graph, when the minimum wage is set at $9 per hour, there will be ____________ unemployment of ____________ workers in this market. The losers when the minimum wage is $9 would be ___________. Using the graph, we can see that if the minimum wage were set at $5 per hour, then____________. The impact of the minimum wage on the labor market as a whole is _________, since around ____________ of workers earn the minimum wage rate.
structural; 4 million. A. low-skill workers who lose their jobs due to a lack of demand for workers. B. low-skill workers who now cannot find jobs due to increased competition for jobs. C. firms that hire low-skill workers at the new wage. there would be no structural unemployment due to wage rigidity, since the minimum wage is non-binding at $5 per hour. Modest, 1 percent
The fast food restaurant on Main Street just laid off several workers, replacing them with self-order computer kiosks. This would imply:
the marginal product of capital per dollar spent on capital was greater than the marginal product of labor per dollar spent on labor.
A profit−maximizing firm will pay a worker ________.
the value of the worker's marginal product
A downward movement along the labor demand curve occurs when ________, assuming all else equal.
the wage rate decreases
Sometimes new technology in production reduces the time that a worker takes to complete a task. Technological innovations can also completely replace a factory worker. Does this mean that technological progress will lead to large-scale unemployment?
No, some sectors may experience unemployment as a result of the innovations but overall productivity and incomes will increase, leading to more employment opportunities.
Scenario: The unemployment rate in Country Y is 6 percent, and the labor force is equals about 200 million people. Who is considered part of the 6 percent of unemployed workers in Country Y?
Peter, an engineer who became a stay−at−home husband after his start−up company went bankrupt, but he wants to find a new engineering job.
The increase in wage inequality over the past five decades is best explained by:
skill-biased technological change.
