Economics of Labor Markets
Mock Exam
Course Introduction
This course explores the fundamental principles and empirical evidence of labor economics, focusing on how labor markets operate and the factors that influence employment, wages, and productivity. Topics include labor supply and demand, wage determination, human capital investment, discrimination, unemployment, the role of unions, labor market policies, and globalizations impact on labor markets. Through theoretical frameworks and real-world case studies, students will gain insight into the functioning of labor markets and the economic forces shaping labor outcomes in different contexts.
Recommended Textbook Labor Economics 7th Edition by George J Borjas
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12 Chapters
360 Verified Questions
360 Flashcards
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Page 2
Chapter 1: Introduction to Labor Economics
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Sample Questions
Q1) Suppose labor supply can be described as E<sub>S</sub> = 0.1w - 1,000 where w is yearly salary. How many workers are willing to work when the yearly salary is $20,000?
A)100
B)200
C)500
D)1,000
E)2,000
Answer: D
Q2) Which of the following is not a leading actor in labor markets?
A)Consumers
B)Firms
C)Workers
D)Government
E)Unions
Answer: A
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Chapter 2: Labor Supply
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Sample Questions
Q1) Assuming consumption and leisure are normal goods, hours worked will fall when the wage increases if
A)the income effect dominates the substitution effect.
B)the substitution effect dominates the income effect.
C)the income and substitution effect move in the same direction (i.e., if they are of the same sign).
D)the income and substitution effect move in the opposite direction (i.e., if they are of the opposite sign).
E)the wage increase is accompanied by an increase in prices.
Answer: A
Q2) What would a person do if the market wage is less than his or her reservation wage?
A)The person will enter the labor market.
B)The person will work as much as possible.
C)The person will work more hours as the wage falls further.
D)The person will be unemployed.
E)The person will not participate in the labor force.
Answer: E
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Chapter 3: Labor Demand
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Sample Questions
Q1) Which of the following statements is false?
A)Perfect substitutes are associated with linear isoquants.
B)Perfect complements are associated with right-angled isoquants.
C)The elasticity of substitution can be positive or negative.
D)The more two factors are substitutes in the firm's production function, the greater is the elasticity of substitution.
E)Perfect substitutes do not need to be employed in a 1-to-1 ratio by the firm.
Answer: C
Q2) In the United States, the federal minimum wage is legislated in nominal terms. This means that
A)the federal minimum wage is indexed for inflation.
B)the federal minimum wage historically decreases in value during stretches when the minimum wage is not increased.
C)employers do not have to pay payroll taxes on wages paid to minimum wage workers.
D)unemployed workers collect government assistance equal to the minimum wage.
E)the government pays the minimum wage to all local, state, and federal workers.
Answer: B
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Page 5
Chapter 4: Labor Market Equilibrium
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Sample Questions
Q1) When the government imposes a payroll tax on employers (and not on workers), which of the following effects will not come about?
A)The labor demand curve shifts down.
B)Employment falls.
C)Firms and workers typically both bear a portion of the tax.
D)Real wages will remain fixed if the labor market is competitive.
E)The costs of hiring increase.
Q2) Which of the following is not an accurate summary of the equilibrium associated with a single competitive labor market?
A)Firms receive surplus equal to the area above the wage rate and below the demand for labor.
B)Workers receive surplus equal to the area below the wage rate and above the supply of labor.
C)All workers are paid the same market-clearing wage.
D)Total firm surplus equals total worker surplus.
E)Total economic surplus is maximized.
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Chapter 5: Compensating Wage Differentials
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Sample Questions
Q1) A standard hedonic wage function might show what relationship?
A)The relationship between the wage and a worker's age.
B)The relationship between the wage and a worker's race.
C)The relationship between the wage and a worker's gender.
D)The relationship between the wage and the probability of injury faced by the worker.
E)The relationship between the wage and a worker's skill level.
Q2) 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?
A)Workers who originally worked safe jobs are helped by the policy.
B)Firms that originally offered safe jobs are hurt by the policy.
C)Workers who originally worked risky jobs are helped by the policy.
D)Firms that originally offered risky jobs are hurt by the policy.
E)No one is hurt by the new policy.
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Chapter 6: Human Capital
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Sample Questions
Q1) People decide how much schooling to receive based on:
A)Their discount rate.
B)The marginal rate of return to schooling.
C)The present value of expected future earnings.
D)Their ability to succeed in education programs.
E)All of the above factors influence how much schooling one receives.
Q2) Why might people choose to go to college?
A)Because a college education signals to firms that the worker is highly motivated.
B)Because a college education increases one's productivity, which will be rewarded in the labor market with higher wages.
C)Because someone enjoys the process of becoming educated.
D)Because one cannot find employment.
E)All of the above.
Q3) The slope of the wage-schooling locus provides an estimate of
A)the average years of education as a function of age.
B)the average wage or salary of workers for a given level of schooling.
C)the economic return to an additional year of schooling.
D)the economic cost of an additional year of schooling.
E)the marginal cost of an additional year of schooling.
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Page 8
Chapter 7: The Wage Structure
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Sample Questions
Q1) Expansions in globalization and the reduction of trade barriers world-wide during the 1980s and 1990s most likely had what effect on the demand for U.S. labor?
A)The demand for unskilled workers increased, while the demand for skilled workers decreased.
B)The demand for unskilled workers decreased, while the demand for skilled workers increased.
C)The demand for unskilled and skilled workers increased.
D)The demand for unskilled and skilled workers decreased.
E)The demand for unskilled workers increased, while the demand for skilled workers didn't change.
Q2) Large disparities in wages could possibly result from all but which one of the following?
A)Parental investment in a child's human capital.
B)Increases in the amount of middle class jobs.
C)Skill-biased technological change.
D)Globalization.
E)An increase in the demand for highly skilled labor.
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Chapter 8: Labor Mobility
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Sample Questions
Q1) Which of the following is least likely to affect the net gain to migration?
A)An improvement in economic opportunities in the destination state.
B)An improvement in economic opportunities in the source state.
C)An increase in migration costs.
D)Changing one's preferences for living in different places.
E)A general increase in the national price level.
Q2) When immigrant labor is complementary to native labor in the production process, a more open immigration policy will likely result in all but which of the following?
A)Firms will value native labor more highly.
B)The labor demand curve for native workers shifts out.
C)Lower wages are paid to native workers.
D)Overall economic efficiency increases.
E)Overall native employment increases.
Q3) When a firm pays higher wages, it is likely that doing so will A)increase turnover.
B)lower the firm's ability to attract high-skill workers.
C)encourage workers to stay on the job for a long time.
D)decrease worker utility.
E)decrease the quality of the potential worker pool.
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Page 10
Chapter 9: Labor Market Discrimination
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Sample Questions
Q1) A large employer gives each new hire an aptitude test, which is scored from 1 to 20. Let T be a worker's score on the test. The firm then pays the new worker a wage of w = 0.6T + 0.4G where G is the average test score for the worker's gender-16 for women; 12 for men. How much more is a woman paid than a man when both scored a 10 on the test?
A)$0.20
B)$0.40
C)$0.80
D)$1.60
E)$3.20
Q2) Which of the following causes a difference in wages but does not necessarily qualify as discrimination?
A)Differences in schooling.
B)Differences in skills.
C)Differences in experience.
D)Differences in language.
E)All of the above lead to differences in wages but none of them necessarily qualifies as discrimination.
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Chapter 10: Labor Unions
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Sample Questions
Q1) What is the union wage gap if the average union salary is $92,000 while the average non-union salary is $80,000?
A)10%
B)13%
C)15%
D)87%
E)125%
Q2) Featherbedding refers to
A)negotiating better fringe benefits than non-union workers.
B)one union using a previously negotiated contract as a starting point for its own negotiations.
C)firing high-wage workers when the union goes on strike.
D)the union requiring the firm to hire more workers than are actually needed to perform a particular task.
E)the union using its members' dues to fund political activities.
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Chapter 11: Incentive Pay
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Q1) Which is not true regarding a delayed-compensation contract?
A)A delayed-compensation contract discourages workers from shirking.
B)A delayed-compensation contract decreases employee turnover within the firm.
C)An effective delayed-compensation contract requires a mandatory retirement age.
D)A delayed-compensation contract necessarily costs more in labor costs than a time-rate system.
E)A delayed-compensation contract is associated with an upward-sloping age-earnings profile.
Q2) To pay piece rates in order to elicit effort, it must be the case that
A)the firm can monitor individual worker output.
B)workers refuse to accept a time rate.
C)firms cannot monitor individual worker effort.
D)the production process relies on group work.
E)the firm does not want to maximize profits.
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13
Chapter 12: Unemployment
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Sample Questions
Q1) Which of the following would not increase the asking wage?
A)The government expands UI benefits from 26 to 52 weeks.
B)The government increases the maximum weekly unemployment benefit from $500 to $800.
C)An increase in the unemployment rate.
D)Having one's spouse receive a pay raise.
E)The government stops taxing UI benefits.
Q2) 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 ten weeks before finding a new job, and 65 are unemployed for fifteen weeks before finding a new job. Approximately what is the average spell of unemployment in Centerville?
A)2 weeks
B)5 weeks
C)8 weeks
D)11 weeks
E)14 weeks
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