Economics of Work and Pay Exam Solutions
Course Introduction
Economics of Work and Pay explores the fundamental principles governing labor markets, focusing on the interactions between workers, employers, and governments. The course examines wage determination, labor supply and demand, and the impact of globalization and technological change on employment. Topics include compensation structures, minimum wage laws, unemployment, discrimination, unions, and workplace policies. Through empirical analysis and case studies, students analyze how economic theory applies to real-world labor issues, equipping them to critically evaluate trends and policies that shape work and pay in contemporary economies.
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) In an econometric model, the dependent variable is
A)the behavior one is trying to explain.
B)unchanging across sub-samples.
C)always the wage.
D)also known as the residual.
E)unrelated to the independent variables.
Answer: A
Q2) What type of questions can be answered with economic tools without interjecting any value judgment as to whether the particular outcome is desirable or harmful?
A)Normative questions.
B)Positive questions.
C)Labor questions.
D)Econometric questions.
E)Public policy questions.
Answer: B
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3
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) An increase in non-labor income while holding the wage rate constant
A)rotates the budget line out along the consumption axis.
B)rotates the budget line out along the leisure axis.
C)rotates the budget line in along the leisure axis.
D)rotates the budget line in along the consumption axis.
E)shifts the budget line up (in the direction of the consumption axis) while maintaining the same slope.
Answer: E
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Chapter 3: Labor Demand
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Sample Questions
Q1) Labor demand is more elastic the greater the elasticity of demand for the firm's output because
A)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.
B)the firm's output price falls when the firm produces less output.
C)a firm that operates in a competitive output market cannot lower its price.
D)capital is usually price elastic.
E)the firm will want to hire fewer workers when the wage rate increases.
Answer: A
Q2) An effective affirmative action program
A)lowers the production costs of color-blind firms.
B)lowers the production costs of discriminatory firms.
C)increases profits of color-blind firms.
D)makes discriminatory firms more inefficient.
E)makes color-blind firms more efficient.
Answer: B
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Chapter 4: Labor Market Equilibrium
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Sample Questions
Q1) Compared to the labor market outcome when there are no payroll taxes, imposing a payroll tax on labor will typically result in:
A)firms paying a higher wage.
B)workers receiving a lower wage net of taxes.
C)a decrease in overall employment.
D)an increase in dead weight loss.
E)all of these are possible outcomes.
Q2) Which of the following statements regarding the Affordable Care Act (ACA) is true?
A)The ACA could have negative employment effects as some firms will not expand above having 50 workers in order to avoid the mandate.
B)The ACA should not be viewed as an employer-provided benefit as the ACA is a federal mandate.
C)The ACA will likely lead to an increase in wages.
D)Prior to the passage of the ACA, over 100 million (more than one-third of) Americans did not have health insurance.
E)All of the statements are true.
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Chapter 5: Compensating Wage Differentials
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Sample Questions
Q1) The cost of offering safe versus risky jobs in the highway construction industry vary across firms. In the end, we would expect the market equilibrium to
A)randomly match workers to jobs.
B)match workers who dislike risk to the highest paying jobs.
C)match workers who dislike risk to firms that find it cheapest to offer safe jobs.
D)have firms that face a high cost of offering safe jobs to pay the lowest wages.
E)have firms randomly choose their level of safety.
Q2) Abby's reservation price for working in a risky job is $5 per hour while Rudy's reservation price for working in a risky job is $8 per hour. Characterize Abby and Rudy's job selections if safe jobs pay $12 per hour and risky jobs pay $18 per hour.
A)Abby and Rudy both work a safe job.
B)Abby works a safe job while Rudy works a risky job.
C)Abby works a risky job while Rudy works a safe job.
D)Abby and Rudy both work risky jobs.
E)Rudy works a risky job while Abby doesn't care which type of job she works.
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Chapter 6: Human Capital
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Sample Questions
Q1) Paula is considering going to law school. If she does, she will spend $60,000 on tuition and books to get a college education (during the first time period), $120,000 on tuition and books to get a law degree (during the second time period), and her law degree will earn her $620,000 during the remainder of her work-life (during the third time period). Paula's time preference for money is associated with a per-period interest rate of 20 percent. Approximately what is Paula's present value of obtaining a law degree?
A)$100,100
B)$210,400
C)$270,500
D)$440,000
E)$621,900
Q2) What is an example of specific job training?
A)Learning word-processing skills.
B)Learning how to use the firm's payroll system.
C)Obtaining a GED.
D)Becoming stronger.
E)Passing the CPA exam.
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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) Higher values of the Gini coefficient are associated with
A)greater education inequality.
B)greater income inequality.
C)less income inequality.
D)greater labor mobility.
E)less labor mobility.
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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) Specific job training
A)allows for more inter-industry job mobility.
B)raises entry level wages for the untrained.
C)leads to lower turnover.
D)discourages workers from earning seniority.
E)leads to a greater willingness by firms to lay off workers.
Q3) Which of the following is a sign of a well-functioning labor market?
A)A high degree of labor mobility (job losses and job gains).
B)A constant unemployment rate.
C)Equal pay for all workers.
D)Equal pay in all regions.
E)All workers have a college education.
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Chapter 9: Labor Market Discrimination
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Sample Questions
Q1) Occupational crowding refers to
A)employee-based discrimination.
B)licensure requirements to enter certain occupations.
C)women being intentionally segregated into particular occupations.
D)firms receiving more applications for high-wage job openings than for low-wage job openings.
E)low turnover associated with high-wage occupations.
Q2) Compared to hiring a white worker, an employer is $5 less happy when he hires a black worker and is $6 less happy when he hires a Hispanic worker. The firm faces hourly wage rates of $20 for whites, $16 for blacks, and $14 for Hispanics. Which of the following describes the firm's hiring decision?
A)The firm hires all white workers.
B)The firm hires all black workers.
C)The firm hires all Hispanic workers.
D)The firm hires a mixture of white and black workers.
E)The firm hires a mixture of white and Hispanic workers.
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11
Chapter 10: Labor Unions
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Sample Questions
Q1) Union organizing drives will be more successful in firms that have relatively ___________ labor demand curves.
A)inelastic
B)elastic
C)flat
D)linear
E)increasing
Q2) In the case of a vertical contract curve, union negotiations will result in the firm hiring
A)more workers and at a higher wage than it would in the absence of the union.
B)the same number of workers but at a higher wage than it would in the absence of the union.
C)fewer workers but at a lower wage than it would in the absence of the union.
D)fewer workers but at a higher wage than it would in the absence of the union.
E)the same number of workers but at a lower wage than it would in the absence of the union.
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Chapter 11: Incentive Pay
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Sample Questions
Q1) Which one of the following statements best describes profit sharing?
A)Profit sharing is an equal division of all revenues among workers.
B)Profit sharing ties pay to the performance of individuals.
C)Profit sharing is a program that donates profits to the poor.
D)Profit sharing provides a system by which workers receive a share of the firm's profits.
E)Profit sharing discourages free-riding among workers.
Q2) One argument against using a profit-sharing scheme is the potential for free-riding. In this situation, free-riding refers to
A)one firm using the same contract specifications as another firm.
B)a worker not providing effort because his contribution to profit is very small.
C)a worker not providing effort because he doesn't want his co-workers' wages to increase.
D)the firm not honestly reporting its profits.
E)profits being insensitive to worker effort because all increases in profit are returned to the workers due to the profit-sharing scheme.
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13
Chapter 12: Unemployment
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Sample Questions
Q1) The United States funds its unemployment compensation system by
A)taxing all firms at the same rate.
B)taxing older, larger firms at a higher rate than younger, smaller firms.
C)taxing firms more when they have a history of causing more layoffs, up to a point.
D)taxing firms more when they have greater profits so that they can afford the additional taxes.
E)taxing non-union firms more than union firms, because union firms pay higher wages on average.
Q2) In the United States, the average replacement ratio associated with unemployment insurance benefits is
A)10%
B)35%
C)50%
D)80%
E)100%
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