Advanced Labor Economics
Test Bank
Course Introduction
Advanced Labor Economics delves into the theoretical frameworks and empirical methods used to analyze labor markets, wage determination, employment, and workforce dynamics. The course explores topics such as human capital investment, job search and matching, wage inequality, discrimination, labor market policy interventions, and the impacts of globalization and technological change on labor outcomes. Emphasis is placed on critical examination of seminal research, advanced econometric techniques, and policy analysis that inform our understanding of labor market behavior and the broader implications for economic growth and social welfare.
Recommended Textbook
Modern Labor Economics Theory and Public Policy 12th Edition by Ronald G. Ehrenberg
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Page 2
Chapter 1: Introduction
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Q1) Which of the following best illustrates an externality?
A) A worker agrees to work in a dangerous job because it is the best job the worker can get.
B) A job is so dangerous that the employer cannot attract workers, resulting in a good not being produced despite the fact that it is valued by consumers.
C) A local government imposes a payroll tax of $5 per hour on employers causing some jobs, that would have existed in the absence of the tax, to be lost.
D) An employer and worker agree to produce a good with a production method that emits pollution on the nearby community.
Answer: D
Q2) Improvements in equity
A) involve comparing the welfare lost by some against the welfare gained by others.
B) are impossible if the initial distribution is Pareto Optimal.
C) generally increase efficiency.
D) can be scientifically evaluated.
Answer: A
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3
Chapter 2: Overview of the Labor Market
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Q1) According to Table 2.2,real earnings in the Widget Industry in 1986 were
A) $22,500.
B) $12,640.
C) $11,538.
D) $15,730.
Answer: B
Q2) The labor force is made up of
A) all members of society.
B) all members of society who are at least 16 years of age.
C) all members of society who are at least 16 years old and are either employed or unemployed.
D) employed workers, unemployed workers, and retired workers.
Answer: C
Q3) During the twentieth century,the unemployment rate in the United States
A) remained roughly constant.
B) was consistently higher than in other industrialized countries.
C) generally decreased.
D) became more stable.
Answer: D
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Page 4
Chapter 3: The Demand for Labor
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Q1) If a payroll tax of $X per hour is collected from employers,then the A) labor demand curve shifts down by \(\frac { 1 } { 2 }\) $X at any given employment level.
B) labor demand curve shifts down by amount $X at any given employment level.
C) labor supply curve shifts left by $X at any given employment level.
D) labor supply curve shifts down by $X at any given employment level.
Answer: B
Q2) If labor costs twice as much as capital (per unit),then,in the long run,
A) labor will be half as productive as capital.
B) labor's marginal product will be twice that of capital.
C) the firm will hire twice as much labor as capital.
D) the firm will hire less labor and more capital.
Answer: B
Q3) When the price of capital increases,a firm will
A) employ more labor because labor has become relatively cheaper.
B) employ less labor due to the increase in costs.
C) employ the same amount of labor.
D) employ more, less, or the same amount of labor.
Answer: D
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Page 5
Chapter 4: Labor Demand Elasticities
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Q1) The minimum wage is a relatively blunt instrument with which to reduce poverty because
A) only about half the labor force is covered by the minimum wage.
B) only about half the employers comply with the law.
C) most workers whose wages are affected by minimum wage increases do not live in poor families.
D) minimum wage increases cause large increases in unemployment.
Q2) In most states,there is a mandatory maximum number of children allowed per day care worker.If this maximum number is binding,then,if the wage of day care workers goes up,the main effect on day care employment will be
A) through the scale effect.
B) through the substitution effect.
C) equally shared between the substitution and scale effect.
D) through neither the scale nor the substitution effect, as labor demand will not change.
Q3) Other things equal,the labor demand curve of a monopolistic firm is likely to be less wage elastic than the labor demand curve of a perfectly competitive firm.Explain why using the relevant Hicks-Marshall Law of Derived Demand.
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Chapter 5: Frictions in the Labor Market
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Q1) A mandated increase in overtime pay is likely to
A) cause employers to reduce overtime hours and convert them into added employment.
B) directly reduce the quasi-fixed costs per worker.
C) lead to a reduction in employment if higher costs cause a large scale effect.
D) lead to a reduction in employment if those who work overtime and those who are unemployed are perfect substitutes.
Q2) If a worker incurs the entire cost of general training,and if mobility costs are low,then we would expect that the employee's wage will be
A) equal to his or her marginal revenue product of labor.
B) greater than his or her marginal revenue product of labor, due to the training received.
C) less than his or her marginal revenue product of labor, to pay for the cost of the training received.
D) either greater or less than his or her marginal revenue product of labor.
Q3) Discuss how the use of credentials in the hiring process can represent an efficient investment by the firm.
Q4) What is the overtime pay premium? Discuss its origin and who it covers.
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Page 7
Chapter 6: Supply of Labor to the Economy: The Decision to Work
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Q1) The Earned Income Tax Credit will probably ________ the labor force participation of low-wage workers and ________ the labor market hours of those with earning in the range that the tax credit is being phased out. A) increase; decrease B) increase; increase C) decrease; increase D) decrease; decrease
Q2) How does an increase in non-labor income affect desired hours of work for a labor force participant? Use indifference curve analysis to illustrate and support your answer.State any assumptions that you make.
Q3) Frankie and Johnny can both earn a wage rate of $10 per hour and,coincidentally,both have $100 per week in non-labor income.Assume that both have T = 100 hours per week to allocate to leisure and work.Frankie chooses to work 40 hours per week.Johnny,on the other hand,chooses not to work at all! Use indifference curve analysis to account for why two individuals confronting the same wage rate and with the same amount of non-labor income make such different labor supply choices.
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Page 8
Chapter 7: Labor Supply: Household Production, the Family, and
the Life Cycle
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Q1) If the only working member of a household receives a decrease in his wage rate,then
A) he will choose to work fewer hours.
B) he will choose to work more hours.
C) he will choose to work the same number of hours.
D) he could work more, fewer, or the same number of hours as before.
Q2) Congress is considering providing a child-care subsidy of $50 per week to mothers that work at least 16 hours per week.What are the labor market implications of such a program? Illustrate your discussion with the appropriate graphical analysis.
Q3) If the only working member of a household receives an increase in her wage rate,then
A) she will choose to increase her hours of work.
B) she will choose to decrease her hours of work.
C) she will not change her hours of work.
D) she could increase, decrease, or maintain her current hours of work.
Q4) What is the distinction between the added worker effect and the discouraged worker effect? Which effect tends to dominate quantitatively?
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Page 9
Chapter 8: Compensating Wage Differentials and Labor
Markets
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Q1) On a graph of wage rates versus risk of injury,indifference curves are convex because A) risk of injury decreases workers' utility.
B) each additional dollar of pay increases utility more than the previous dollar.
C) utility is constant on indifference curves.
D) at low levels of risk, a worker is less willing to give up wages for increased safety.
Q2) Assume that all workers prefer to work 40 hours a week at a given wage.If real estate jobs asks workers to rotate between working 20 hours a week and 60 hours a week,which of these workers is likely to work for the lowest relative average hourly pay in real estate?
A) workers with large income effects
B) workers with small income effects
C) workers with large substitution effects
D) workers with small substitution effects
Q3) The Occupational Safety and Health Administration is tasked with implementing and enforcing federal safety and health standards.Why are federal safety and health standards necessary in the workplace? Use the hedonic model to answer the question.
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10
Chapter 9: Investments in Human Capital: Education and Training
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Q1) Students who attend college because they enjoy the lifestyle and freedom are treating college
A) as an investment good.
B) as an inferior good.
C) as a consumption good.
D) as a normal good.
Q2) Which of the following is a cost of going to college?
A) the cost of living in a dorm
B) the cost of college cafeteria food
C) the cost of dating while in college
D) None of the above is a cost of going to college.
Q3) Age/earnings profiles "fan out" by education level.Agree or disagree? Explain your reasoning.
Q4) Women generally receive ________ on-the-job training than men,causing their age-earnings profiles to be ________ than those of men.
A) less; flatter
B) less; steeper
C) more; flatter
D) more; steeper
11
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Chapter 10: Worker Mobility: Migration, Immigration, and Turnover
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Q1) An economist assumes while educated persons have lower informational costs to moving,younger adults have lower psychic costs of moving.Which of the following observations (if true)would support this assumption?
A) Among people with the same education, we observe younger persons moving only if there is a large wage gain from moving.
B) Among people of the same age, we observe less educated persons moving only if there is a large wage gain from moving.
C) Both A and B support the assumption.
D) Neither A nor B support the assumption.
Q2) Young workers are more likely to quit their jobs than older workers for all of the following reasons EXCEPT
A) younger workers have a longer period over which to collect the benefits of a job change.
B) younger workers have lower psychic costs from mobility.
C) younger workers have better job matches.
D) younger workers have less firm-specific training.
Q3) How does earnings distribution help predict which skill groups within a sending country are most likely to emigrate from the country?
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Chapter 11: Pay and Productivity: Wage Determination
within the Firm
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Q1) Which of the following would NOT (even if true)explain why wages rise with job tenure?
A) Workers become more productive the longer they are with the firm.
B) Over time, the firm is able to dismiss less productive workers.
C) Workers acquire more specific human capital the longer they are with the firm.
D) Starting with a lower wage and then letting wages rise with job tenure reduces the present value of wages paid to a worker by an employer.
Q2) A promotion tournament is
A) a process to assure the most productive worker is paid his or her marginal product.
B) a process to help a corporation get rid of "deadwood."
C) a way to insure that all diligent workers get big rewards.
D) a process to motivate several workers to try and win one high-paying job.
Q3) Pay for performance works LEAST well for an employee
A) who works as a counselor for other employees in a company.
B) who is closely supervised.
C) who maximizes utility.
D) whose value added is easily measured.
Q4) What is the firm-size effect? What accounts for the firm-size effect?
Page 13
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Chapter 12: Gender,Race,and Ethnicity in the Labor Market
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Q1) Employee-based discrimination along racial lines implies all of the following EXCEPT
A) workers will be paid more when working in racially integrated workplaces.
B) some workplace segregation will occur.
C) workers wish to maximize utility rather than wages.
D) profit-maximizing employers will seek to hire employees with a preference for discrimination.
Q2) Between 1990 and 2010,which group did NOT experience growth in their share of the civilian labor force?
A) women
B) whites
C) Hispanics
D) Asians
Q3) Employer discrimination implies that
A) some employers give up profits to avoid hiring one group.
B) if the group discriminated against is small, there will be a wage differential in the market.
C) there will be no market wage differential.
D) co-workers and customers prefer one group of workers over another.
Q4) What is affirmative action?
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Chapter 13: Unions and the Labor Market
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Q1) Unions tend to
A) increase wages for white-collar and blue-collar members by roughly the same amount relative to non-union workers.
B) increase relative wages more for blue-collar workers.
C) increase relative wages more for white-collar workers.
D) encourage high levels of education and training for their members.
Q2) The relative union wage advantage is generally
A) about 50% in the United States.
B) smaller in the United States than in Europe.
C) larger in the public sector than in the private sector.
D) larger during recessions.
Q3) The efficient contract model implies that
A) the union and the employer are both better off than they would be in a monopoly union model.
B) the union maximizes a utility function, subject to the firm's labor demand function.
C) the union negotiates only on wage levels, not on employment levels.
D) firms have more negotiating power than unions.
Q4) What is interest arbitration?
Q5) What is a right-to-work law?
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Chapter 14: Unemployment
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Q1) An increase in an individual's reservation wage
A) will increase the duration of the individual's unemployment but not affect the expected wage.
B) will increase the individual's expected wage but not affect the duration of unemployment.
C) will not change the individual's duration of unemployment.
D) will increase both the individual's duration of unemployment and expected wage.
Q2) How does demand-deficient unemployment arise? Use a demand/supply diagram to illustrate your answer.
Q3) A worker who is laid off because his or her company chooses to move from Wisconsin to North Carolina is counted as ________ unemployment.
A) frictional
B) wait
C) structural
D) cyclical
Q4) What is the reservation wage? How does an individual's reservation wage affect the duration of a spell of unemployment? How does an individual's reservation wage affect the individual's expected wage?
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Chapter 15: Inequality in Earnings
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Q1) If the fraction of the people in the middle of the income distribution decreases by 20 percent with half of these moving to the lower end and the other half to the upper end,then income inequality will A) increase.
B) decrease.
C) be unaffected.
D) uncertain.
Q2) If all incomes were to double (due to inflation,for example)then the coefficient of variation of income will A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.
Q3) If a number of new workers enter the labor force and all of them find jobs at the mean level of wages,then this will cause the variance of wages to A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.
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Page 17
Chapter 16: The Labor-Market Effects of International Trade and
Production Sharing
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Q1) Mr.X works in the warehouse of a large textile firm located in the United States.The firm outsources the production of its textiles to another nation.Which of the following is an example of the possible substitution effect of this event on Mr.X?
A) The lower price of the textiles causes his firm to sell more textiles, increasing its demand for warehouse workers.
B) The outsourcing of production reduces the company's demand for warehouse workers in the United States and increases its demand for warehouse workers in the other nation.
C) Both of the above.
D) Neither of the above.
Q2) Mr.X is a total loser.He is worse at doing everything than anyone else.According to the law of comparative advantage,
A) he will not be able to compete with others and will remain unemployed.
B) others will be worse off dealing with Mr. X as he is comparatively inferior.
C) he will be able to get a job but at such a low wage that he will be, on net, worse off.
D) he will be able to compete with others by doing what he is comparatively less worse at.
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