Labor Market Homework
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.
$80
Which of the following is an example of what economists refer to as job search?
A. A person who applies for a high-paying job but does not qualify, so she begins searching for an appropriate position. B. People that engage in the job hunt by sending out resumes. C. An individual that engages in the job hunt by determining who is hiring and how much they pay (All of the Above)
Structural unemployment can be caused by ____________.
A. Efficiency wages B. collective bargaining rights of workers (Both A and B)
The losers when the minimum wage is $99 would be ___________. (Check all that apply.)
A. firms that hire low-skill workers at the new wage. B. low-skill workers who now cannot find jobs due to increased competition for jobs. C. low-skill workers who lose their jobs due to a lack of demand for workers.
The value of marginal product of labor (VMPL) is ____________
A. given by the marginal product of labor times the price of the firm's output. C. the contribution of an additional worker to a firm's revenues. D. A and C only.
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.
If wages, instead, face downward wage rigidity and remain at $6.50 per hour, what would be the change in employment caused by the shock to labor demand?
The labor market would move from E1 to E2, resulting in a decrease in employment of 3 thousand workers.
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?
The labor market would move from E1 to A, which would result in a decrease in employment of 1.5 thousand workers.
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.
A friend tells you that he thinks that the salespeople who work at Apple stores are paid very low wages, given their productivity. Dividing Apple's revenues by the total number of employees shows that each employee contributed an average of $473,000 in revenues in 2011. But most of Apple's sales staff are paid about $25,000 a year. What is the flaw, if any, in your friend's reasoning?
The wage is equal to the value of the worker's marginal product, not revenue per worker.
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? Based on Hagedorn, Karahan, et al., "Unemployment Benefits and Unemployment in the Great Recession: The Role of Macro Effects." NBER working paper 19499, October 2013.
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.
You accept a new job for a wage of $30,000 at a newspaper. You join the sales team, which consists of 10 people who try to sell online subscriptions. Each subscription sells for $200. When you talk to your boss, she says that you are the 11th worker, and that if you had not joined the team, she would have done okay with just 10 peoplelong dash—but "great to have you, we are more productive with you on board!" Assuming that the wage is determined by market forces, your boss must believe that your marginal product of labor is ___________ equal to ________ (Use the concept of the value of the marginal product of labor.)
any least 150
Which of the following factors does not cause a shift in the labor demand curve?
changes in the wage rate
The goal of a country with a healthy economy is to have ____________ equal to zero.
cyclical unemployment
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?
deliveries would increase by less than 90 per week, since there will be diminishing marginal product of labor
When the firm's VMPL is plotted in a diagram with the quantity of labor measured along the horizontal axis, the resulting curve will be _______________ and constitutes the firm's ______________ .
downward sloping demand curve for labor
CyclicalCyclical unemployment is the unemployment that arises ____________.
during recessions when the unemployment rate is above the natural rate
What type of unemployment does job search lead to?
frictional unemployment
Frictional employment can result when ____________. (Check all that apply)
it takes time for firms to find applicants with the right skills and experience firms and workers have imperfect information about the state of the economy firms and workers have imperfect information about each other
The value of the marginal product of labor is the ____________.
market value of a worker's additional output for a firm
The impact of the minimum wage on the labor market as a whole is ______, since _________ of workers earn the minimum wage rate.
modest around 1 percent
The shock to labor demand has a more detrimental impact on employment when the wage rate is _______
rigid downward
Which of the following does not cause the labor supply curve to shift?
shifts in the labor demand curve that cause a change in the wage
According to the graph, when the minimum wage is set at $99 per hour, there will be ____________ unemployment of ____________ workers in this market.
structural; 4 million
Using the graph, we can see that if the minimum wage were set at $5 per hour, then ____________.'
there would be no structural unemployment due to wage rigidity, since the minimum wage is non-binding at $5 per hour.
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
A profit-maximizing firm will hire workers until the________ equals the ________. To hire beyond that would mean the firm would be paying the worker_______ than the worker's contribution to the firm.
value of the marginal product of labor (VMPL) wage more
Firms should hire workers until the ____________.
value of the marginal product of labor is at least as great as the wage paid
the labor demand curve shows the quantity of labor demanded will decrease as ___________. This results in a labor demand curve that is_____________.
wages increase downward-sloping
Which of the following best explains why the labor supply curve slopes upward?
when wages increase, the opportunity cost of not working increases, leading people to seek more work hours
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.
