Employment and Compensation Exam Bank
Course Introduction
Employment and Compensation explores the fundamental principles and practices involved in managing an organizations human resources with a focus on staffing, job analysis, pay structures, incentive systems, and legal compliance. The course examines strategies for recruiting, selecting, and retaining employees, as well as the design and administration of compensation and benefits programs that align with organizational goals and market standards. Through case studies and practical applications, students gain an understanding of wage theory, internal and external pay equity, incentive plans, and the role of compensation in motivating employee performance and ensuring organizational competitiveness.
Recommended Textbook
Modern Labor Economics Theory and Public Policy 11th Edition by Ronald G. Ehrenberg
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16 Chapters
594 Verified Questions
594 Flashcards
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Page 2
Chapter 1: Introduction
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Sample Questions
Q1) If the slope of a regression line is negative, then an increase in the independent variable will cause
A) an increase in the dependent variable.
B) an increase in the error term.
C) a decrease in the dependent variable.
D) a decrease in the error term.
Answer: C
Q2) In Job X, the employer gets a gross benefit of $600 a week from employing a worker (this is the highest wage the employer will pay). The worker is willing to work for the employer if paid $400 a week or more. Which of the following is Pareto efficient?
A) a law mandating a minimum wage of $650 a week
B) a law mandating a maximum wage of $300 a week
C) a law allowing the employer to pay whatever wage they want
D) a law mandating a chauffeured car, costing $250 a week and valued by the worker at $10, be provided by the employer
Answer: C
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3
Chapter 2: Overview of the Labor Market
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Sample Questions
Q1) "Police persons are finding more lucrative and diverse alternative careers in the private sector" If this statement is true, then the supply curve of labor to policing will likely shift ________ and become ________ steep. Select the best pair of answers.
A) up; more
B) up; less
C) down; more
D) down; less
Answer: A
Q2) Which area pays the highest real wage?
A) Nominal Wage $15; Consumer Price Index for Area $50
B) Nominal Wage $20; Consumer Price Index for Area $100
C) Nominal Wage $25; Consumer Price Index for Area $150
D) Nominal Wage $50; Consumer Price Index for Area $200
Answer: A
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4
Chapter 3: The Demand for Labor
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Sample Questions
Q1) Referring to Table 3.1, if wages are $50.00 per day and pots sell for $20.00 each, how many potters will the firm hire?
A) two
B) three
C) four
D) five
Answer: C
Q2) If an increase in the cost of labor causes the firm to use less capital, then
A) the scale effect has dominated over the substitution effect.
B) the substitution effect has dominated over the scale effect.
C) the firm has moved along an isoquant curve.
D) the firm has moved onto a higher isoquant.
Answer: A
Q3) If labor costs twice as much as capital (per unit), then, in the long run,
A) labor will be twice as productive on average as capital.
B) labor's marginal product will be twice that of capital's.
C) the firm will hire twice as much labor as capital.
D) the firm will hire less labor and more capital.
Answer: B
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Page 5
Chapter 4: Labor Demand Elasticities
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Sample Questions
Q1) If the quantity of steel workers demanded falls from 30,000 to 20,000 when the equilibrium wage increases from $9.00 per hour to $11.00 per hour, then the own-wage elasticity of demand for these workers is
A) -2.0.
B) -0.5.
C) -0.4.
D) -0.2.
Q2) Employment often increases after an increase in the minimum wage because
A) more people want to work at the new, higher wage.
B) independently, labor demand increases significantly at the same time.
C) the minimum wage is below the equilibrium level of wages.
D) the labor supply curve is vertical.
Q3) In an industry, when the price of electricity goes up, the company employs more low-skilled workers. This implies
A) The substitution effect dominated in scale effect
B) The scale effect dominated the substitution effect
C) The substitution effect worked in the same direction as the scale effect
D) The scale effect was positive
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6
Chapter 5: Frictions in the Labor Market
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Sample Questions
Q1) A firm employs 10 workers at a weekly wage of $500. If it employs an eleventh worker, it has to raise all of its workers wage to $520. The eleventh worker adds $750 a week to revenues. If the firm hires the eleventh worker, its weekly profits will
A) go up by $230.
B) go up by $30.
C) go up by $23.
D) go down by $270.
Q2) The marginal product of a new worker is 80 units and the marginal expense of a new worker is $800. The marginal product of hiring current workers another hour is 10 units and the marginal expense of hiring current workers another hour is $12. If the firm needs extra hours of work (assuming the work could be done by either the new or current workers), it should
A) hire new workers.
B) hire current workers more hours.
C) be indifferent between hiring new workers or hiring current workers more hours.
D) not hire anyone for the added hours of work.
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Chapter 6: Supply of Labor to the Economy: the Decision to Work
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Sample Questions
Q1) If Gene receives a raise in his hourly wage and decides he would like to increase his hours of work, we know that
A) his income effect is greater than his substitution effect.
B) his substitution effect is greater than his income effect.
C) his income and substitution effects are equal.
D) his income and substitution effects reinforce each other.
Q2) A welfare program offers benefit B to those not working. For those working, it reduces benefit by a dollar for every dollar earned until no benefits are left to be paid. It is found that increasing B results in longer hours of work for those who continue to work. The likely cause of this is
A) the dollar for dollar reduction in B reduces the increase in income to zero, resulting in an income effect that causes people to work longer hours.
B) only those with a higher preference for working (flatter utility curves) will continue to work
C) the increase in B reduces the substitution effect.
D) the increase in B results in an income and substitution effect on those working that causes them to work longer hours.
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Page 8
Chapter 7: Labor Supply: Household Production, the Family, and
the Life Cycle
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Sample Questions
Q1) Sally is single. Her income rises because of her wise stock investments, but her wage rate stays the same. In the labor supply model that replaces "leisure" with "household production time," the increase in income will likely
A) increase work hours as she spends less time in the household consuming more commodities.
B) increase work hours as her higher income allows her to buy goods that make her more efficient in the household.
C) decrease work hours because higher income people get more pleasure from working than being in the household.
D) decrease work hours as she spends more time in the household consuming more commodities.
Q2) The monetary value of a homemaker's time can NOT be estimated by A) measuring the services in terms of current market prices. B) comparing the value of the services to the spouse's wage rate.
C) measuring the value of the services by looking at the homemaker's opportunity costs. D) measuring the marginal value of the services by the homemaker's wage rate received in a part-time job.
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Page 9
Chapter 8: Compensating Wage Differentials and Labor
Markets
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Sample Questions
Q1) There are 100 jobs in a town and 100 workers. Forty of the jobs are dangerous, 60 are safe. Workers have the following preferences: worker one dislikes danger by $1, worker two dislikes danger by $2, worker three dislikes danger by $3, and so forth (such that worker hundred dislikes danger by $100). Assume workers are mobile and well-informed and the labor market is mobile. Also assume that safe jobs pay $500 a week. Which of the following statements will be true?
A) Dangerous jobs will pay $540 a week.
B) Worker one will earn rents of $39.
C) Worker hundred will earn rents of $60.
D) All of the above are true.
Q2) Holding all other factors constant, workers who are strongly averse to risk will tend to have jobs paying
A) average wages.
B) below average wages.
C) above average wages.
D) at least average wages.
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Chapter 9: Investments in Human Capital: Education and Training
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Sample Questions
Q1) Which of the following will increase the likelihood a person will go to college?
A) an increase in the interest rate (or discount rate)
B) a decrease in the years spent working after graduating
C) an decrease in the internal rate of return to college
D) a decrease in the earnings of high school graduates
Q2) The psychic costs of college are usually lowest for
A) students with relatively high ability.
B) students from poor backgrounds.
C) students with average or low ability.
D) students who are at the margin in terms of attending college or not.
Q3) Which of the following would likely, in the long run, reduce the observed rate of return from going to college?
A) Funds available to support college students become less available.
B) People going to college start to work longer hours.
C) Earning of high school graduates go down.
D) Educational reforms cause going to college to be fun and enjoyable.
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Chapter 10: Worker Mobility: Migration, Immigration, and Turnover
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Sample Questions
Q1) Average job tenure is lower in the United States than in most other industrialized countries. Theory predicts that this could be because
A) the United States is less densely populated.
B) American workers receive higher levels of firm-specific training.
C) the costs of residential mobility are lower in the Unites States.
D) most American workers have employer-based health insurance.
Q2) In an industry, a unit of output can be produced by 3 unskilled workers or by 1 skilled worker. From this information, skilled and unskilled workers are
A) gross complements.
B) substitutes-in-production.
C) complements-in-production.
D) gross substitutes.
Q3) Quit rates rise as A) wages increase.
B) firm size decreases.
C) workers age.
D) the unemployment rate increases.
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Page 12
Chapter 11: Pay and Productivity: Wage Determination
Within the Firm
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Sample Questions
Q1) Suppose that monopsony behavior results from the increased monitoring costs at large firms. A higher minimum wage would ________ the marginal expense of hiring labor but only if the workers are ________ afraid of losing their jobs and thus need less supervision.
A) rise; more B) raise; less C) lower; more D) lower; less
Q2) Students in a 100 person class agree before hand to answer all 20 multiple choice questions with B. Under which of these grading methods is this likely to prove an effective agreement that does not produce cheating on the agreement (for example, by a few students answering the questions correctly)?
A) The professor gives the top five papers a 100, the next five best an 80, and the rest a 50.
B) The professor gives the highest score a grade of 100 and starts reducing scores by 5 points for every one wrong.
C) The professor substracts 5 points from 100 for every question wrong.
D) The best paper gets an A, the rest an F.
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Chapter 12: Gender, Race, and Ethnicity in the Labor Market
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Sample Questions
Q1) Between 1988 and 2008, which group did NOT experience growth in their share of the civilian labor force?
A) women
B) white males
C) hispanics
D) asians and Native Americans
Q2) Suppose that tall employees dislike working with short employees. Assume also that short and tall employees are perfect substitutes for one another in producing goods. What is the likely outcome?
A) Tall workers will be paid more to compensate them for their dislike of short workers. B) Work places will be segregated (some employing only tall employees, others all short employees).
C) Firms will make a larger profit by integrating the work place.
D) Increased diversity in the workplace will decrease turnover rates.
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14
Chapter 13: Unions and the Labor Market
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Sample Questions
Q1) In the imperfect information model, employers who provide better information about their profitability to their employees
A) should see a decrease in frequency of strikes, but an increase in duration.
B) should see an increase in frequency of strikes, but a decrease in duration.
C) should see an increase in both frequency and duration of strikes.
D) should see a decrease in both frequency and duration of strikes.
Q2) Increases in the minimum wage can help unions by
A) increasing the welfare of non-union workers.
B) increasing the demand for labor.
C) increasing costs faced by employers.
D) increasing the cost of substituting non-union labor for union labor.
Q3) Empirical studies have concluded that unionization ________ productivity and ________ profit rates.
A) has no consistent effect on; has no consistent effect on
B) has no consistent effect on; reduces
C) reduces; has no consistent effect on D) reduces; reduces
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Chapter 14: Unemployment
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Sample Questions
Q1) European policies which make it difficult to dismiss workers and reduce wage flexibility have probably
A) increased the rate of job creation.
B) decreased the unemployment rate.
C) decreased the rate of long-term unemployment.
D) increased the costs of doing business.
Q2) The wage curve
A) shows that with higher regional rates of unemployment, wages for otherwise comparable workers are higher.
B) is evidence that most national economies have regionally integrated labor markets.
C) may exist because efficiency-wage premiums can be smaller in areas of high unemployment.
D) is evidence that wages are always at equilibrium.
Q3) Which of the following describes the wage curve?
A) Workers with higher wages are less likely to become unemployed.
B) Regions with higher wages have lower regional unemployment rates.
C) As more workers seek jobs, market wages fall.
D) As regional wages increase, the number of persons seeking jobs goes up.
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16
Chapter 15: Inequality in Earnings
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Sample Questions
Q1) If supply shifts were the primary cause behind the increasing wage gap between highly-educated and less-educated workers then
A) both supply curves must shift in the same direction.
B) the employment of less-educated workers would increase relative to the employment of college-educated workers.
C) the employment of less-educated workers would decrease relative to the employment of college-educated workers.
D) the relative employment of the two groups would not change.
Q2) The greatest growth of earnings disparities within an occupation in the 1980s occurred
A) within the sales profession.
B) among government workers.
C) within the teaching profession.
D) among assembly line workers.
Q3) The Gini coefficient in a society where all families have equal incomes would be
A) 0.
B) 0.5.
C) 1.0.
D) 2.0.
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Page 17
Chapter 16: The Labor Market Effects of International Trade and
Production Sharing
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Sample Questions
Q1) The size of the substitution effect when companies substitute foreign labor for domestic labor, will be greater (on domestic labor) when
A) the supply of domestic labor is more elastic.
B) the goods produced are easily transported between nations.
C) the ability to produce the goods are shared by all nations.
D) all of the above
Q2) Domestic textile workers are more likely to lose their jobs to foreigners when
A) the marginal product of foreign workers divided by their wage is lower than the same ratio for domestic workers.
B) they are close substitutes for foreign workers.
C) the scale effect for complementary inputs is small.
D) wages are a small fraction of total costs.
Q3) Which of these displaced workers is likely to be most harmed by losing their job due to foreign trade?
A) Worker A who has firm-specific skills.
B) Worker B who has general skills.
C) Worker C who has a very elastic supply curve of labor.
D) Worker D who spends a large fraction of her income on imported goods.
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