Human Resource Economics
Final Exam Questions
Course Introduction
Human Resource Economics explores the economic principles and analytical tools used to understand labor markets and the employment relationship. The course examines how individuals make decisions regarding education, job search, and work effort, as well as how employers make choices about hiring, compensation, training, and workplace organization. Topics include wage determination, human capital investment, labor market discrimination, employee incentives, migration, and the impact of institutions and public policy on labor market outcomes. Through this course, students develop a nuanced understanding of how economic forces shape workforce dynamics and the allocation of human resources in various organizational and national settings.
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) 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
Q2) A regression shows how the ________ is affected by the ________.
A) dependent variable; independent variable
B) independent variable; cross-section
C) independent variable; dependent variable
D) independent variable; error term
Answer: A
Q3) In a world without scarcity,
A) there would be no costs.
B) there would be no benefits.
C) goods would have no value.
D) there would be no wants.
Answer: A
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3
Chapter 2: Overview of the Labor Market
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Q1) How is the monthly unemployment rate determined in the United States?
Answer: The monthly unemployment rate is estimated by the government based on information collected in the Current Populations Survey,a survey administered to approximately 50,000 households every month.In order to be counted as unemployed,one must be available to work and to have looked for work within the last month or,alternatively,must be laid off and awaiting recall to one's previous employer.
Q2) If a single small firm's demand for secretaries increases,then
A) its wage rate will increase and its employment level will remain the same.
B) its wage rate will increase and its employment level will increase.
C) its wage rate will remain the same and its employment level will increase.
D) both its wage rate and its employment level will remain the same.
Answer: C
Q3) A worker's income is equal to his A) earnings.
B) wage rate multiplied by hours worked.
C) wages plus benefits.
D) earnings plus employee benefits plus unearned income.
Answer: D
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Chapter 3: The Demand for Labor
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Q1) If the firm hires to a point where the marginal expense of labor is greater than the marginal revenue product of labor,then
A) profits could be increased by increasing employment.
B) profits could be increased by reducing employment.
C) profits are maximized.
D) total cost must be greater than total revenue.
Answer: B
Q2) Referring to Table 3.1,diminishing marginal returns begins with the ________ employee.
A) first
B) second
C) third
D) sixth
Answer: C
Q3) Declining marginal product of labor
A) is needed if competitive firms are to stop hiring workers at some point.
B) allows firms to make the most profit.
C) mainly exists because workers get tired after many hours of work.
D) implies workers get more productive as more of them are hired.
Answer: A
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Chapter 4: Labor Demand Elasticities
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Q1) The own-wage elasticity of demand measures
A) change in wages divided by change in quantity of labor demanded.
B) change in quantity of labor demanded divided by change in wages.
C) percentage change in wages divided by percentage change in quantity of labor demanded.
D) percentage change in quantity of labor demanded divided by percentage change in wages.
Q2) If Industry A can substitute capital for labor easily and Industry B cannot,then (other things equal)
A) Industry A's own-wage elasticity of demand will be higher than Industry B's.
B) Industry B's own-wage elasticity of demand will be higher than Industry A's.
C) the industries' own-wage elasticities of demand will be equal.
D) we cannot predict which firm's own-wage elasticity of demand will be higher.
Q3) Along a straight-line demand curve for labor
A) the slope becomes more negative as the wage rises.
B) the elasticity of demand remains constant.
C) demand becomes more elastic as the wage rises.
D) demand becomes less elastic as the wage rises.
Q4) The minimum wage is a relatively ineffective means by which to reduce poverty.Agree or disagree.Explain your reasoning.
Page 6
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Chapter 5: Frictions in the Labor Market
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Q1) A profit-maximizing firm that wants to train its workers CANNOT
A) equate the marginal revenue product of labor to the value of expenditures on labor over time.
B) allow worker marginal revenue product in the post-training period to exceed the wage paid in the post-training period.
C) allow the wage in the post-training period to be equal to or greater than the worker's post-training marginal revenue product.
D) allow the cost of training to exceed worker marginal revenue product during the training period.
Q2) The use of an internal labor market implies that
A) workers in lower-level jobs will become less motivated and less dependable.
B) workers at the firm have no firm-specific training.
C) most upper-level jobs will be filled by promoting current workers.
D) the firm relies exclusively on credentials.
Q3) Discuss how the use of credentials in the hiring process can represent an efficient investment by the firm.
Q4) Is an employer's unemployment insurance payroll-tax liability a quasi-fixed cost of employment? Why or why not?
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Page 7
Chapter 6: Supply of Labor to the Economy: The Decision to Work
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Q1) A worker is indifferent between job one lasting 4 hours a day,job two lasting 8 hours a day,and job three lasting 12 hours a day.Job two pays $10 an hour and tangency between the indifference curve and the budget constraint occurs at 8 hours.One can conclude that
A) job one pays less per day but more per hour.
B) job three pays more per day and more per hour.
C) both A and B are true.
D) neither A nor B is true.
Q2) A person with ________ indifference curves is most likely to decide not to participate in the labor force.
A) flat
B) steep
C) straight
D) upward-sloping
Q3) Fixed costs of working will cause ________ the number of people choosing to work zero hours.
A) an increase in
B) a decrease in C) no change in
D) an ambiguous change in
Page 8
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Chapter 7: Labor Supply: Household Production, the Family,
and the Life Cycle
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Q1) How does a life cycle model of labor supply account for the high labor force participation rate of males 25 to 50 years old?
Q2) What is a "collective" model of household decision-making? How does a collective model of household decision-making account for wives spending more time in household production than husbands?
Q3) The monetary value of a homemaker's time CANNOT 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.
Q4) Most people travel more and enjoy more leisure when they are elderly than when they are middle-aged.This can be explained by
A) income effects due to decreasing wages.
B) substitution effects due to increasing wages.
C) life-cycle considerations.
D) the fact that their time is relatively expensive.
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Chapter 8: Compensating Wage Differentials and Labor
Markets
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Q1) A compensating wage differential is
A) an extra wage that compensates workers for undesirable working conditions.
B) an extra wage that is above the equilibrium wage.
C) an extra wage that will make all workers willing to accept undesirable working conditions.
D) an extra wage that implies firms are no longer maximizing profits.
Q2) One problem with using worker willingness-to-pay figures to set safety standards is that
A) the utility of other parties may be affected by worker safety levels.
B) workers' preferences cannot be translated into monetary terms.
C) the use of safety equipment will decrease workers' utility.
D) willingness-to-pay figures usually decrease over time.
Q3) When workers indifference curves are drawn for wage rates versus injury risk,
A) the indifference curves slope downwards because a higher wage is required to accept a higher risk of injury.
B) the indifference curves slope upwards because a higher wage is required to accept a higher risk of injury.
C) utility increases as a worker moves to the right along an indifference curve.
D) utility decreases as a worker moves to the right along an indifference curve.
Page 10
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Chapter 9: Investments in Human Capital: Education and Training
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Q1) Since 1980,the college enrollment rate of both male and female recent high school graduates has ________,while the ratio of earnings of college to high-school graduates has ________.
A) increased; increased B) increased; decreased
C) decreased; decreased D) decreased; increased
Q2) Mary can take a class that costs $10,000.The class teaches her a skill that will only be useful during the second year after training.What must the minimum pay for the skill in the second year be for Mary to take the class? She could alternatively invest the $10,000 and earn an annual rate of return of 20%.
A) $4,000
B) $4,400
C) $14,000
D) $14,400
Q3) Age/earnings profiles "fan out" by education level.Agree or disagree? Explain your reasoning.
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Page 11
Chapter 10: Worker Mobility: Migration, Immigration, and Turnover
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Q1) A friend claims that "If the United States prevents illegal immigrants from obtaining jobs,then that will create an equivalent number of jobs for deserving Americans." Evaluate the friend's claim with demand/supply analysis.
Q2) Suppose all home values fall by $50,000,such that when a person moves,they have to take a $50,000 loss as they had borrowed up to the full value of the house.However,assume movers still have the credit to buy a new home.How will this event affect the mobility of homeowners as compared to losing $50,000 in the stock market?
A) Mobility will be the same as either loss is a sunk cost.
B) The loss in home value will reduce the mobility of owners more because by not moving, they can avoid facing the loss in their home's value.
C) The loss in home value will increase mobility because homes elsewhere are now $50,000 cheaper.
D) The loss in home value will increase mobility only if homes are expected to appreciate more than stocks.
Q3) Other factors held constant,middle aged workers (ages 35-44)are more likely to migrate than workers in other age categories.True,false,or uncertain? Explain the basis of your choice.
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Chapter 11: Pay and Productivity: Wage Determination
within the Firm
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Q1) Assume the following is true: in the past,many firms promised their workers a certain type of pension plan in exchange for lower wages.Recently,these firms reneged on their promise by changing to another pension plan that was significantly less valuable to older workers (but was more valuable to younger workers).Assuming the original promised plan was expected to be profitable,why would firms change their plans?
A) Firms had to report the costs of these plans to stockholders.
B) Firms wanted to motivate older workers to work harder.
C) Due to technical change, the skills of older workers became less valuable.
D) Firms placed a higher value on having a good reputation.
Q2) About 30 percent of CEO pay is in the form of stock or stock options.What is the rationale for paying a chief executive officer with company stock or options to buy the company stock? What are the drawbacks of paying corporate decision makers with stock?
Q3) The best way to align the interest of corporate executives and company owners is probably to pay executives
A) based on annual profit.
B) a fixed salary.
C) based on the stock market value of the company.
D) based on sales of the firm.
Page 13
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Chapter 12: Gender,Race,and Ethnicity in the Labor Market
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Q1) 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
Q2) The Equal Pay Act of 1963
A) outlawed sexual discrimination in firing of workers.
B) outlawed sexual discrimination in hiring of workers.
C) outlawed separate pay scales for men and women who perform the same jobs.
D) outlawed racial discrimination in hiring of workers.
Q3) In the personal prejudice model of employer-based discrimination,show and explain how an increase in the supply of the discriminated against group affects the relative wage of the group.Show and explain how the relative wage of the discriminated against group is affected by an increase in the number of non-discriminating employers.
Q4) What is affirmative action?
Q5) Women over the age of 24 who worked full-time earned an average of 62 percent of what males earned in 2011.What factors account for this stunning difference in rate of pay of the two groups?
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Chapter 13: Unions and the Labor Market
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Q1) Suppose a study found that union wages were 10% higher than nonunion wages.Unions will have actually raised wages by more than 10% when
A) union workers who lost their jobs found work in the nonunion sector.
B) consumers shifted their demand to the lower priced nonunion goods.
C) nonunion employers raised their wages in response to the threat of being unionized.
D) union workers are more productive workers than nonunion workers.
Q2) Unions usually have which of the following effects?
A) They increase the profits of unionized firms by motivating workers to work harder.
B) They increase the growth rate of employment in unionized firms as more workers are attracted to unionized jobs.
C) They increase the fraction of total compensation paid in the form of employee benefits.
D) They decrease the total compensation of unionized workers.
Q3) What has happened to the percentage of union membership in the private sector since the 1970s? What are the demand-side factors that would account for the trend you identified? What are the supply-side factors accounting for the trend you identified?
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Page 15
Chapter 14: Unemployment
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Q1) Experience rating is
A) assigning a higher UI tax to employers who lay off workers frequently.
B) assigning a higher UI tax to employers who have a large number of experienced workers.
C) assigning a higher UI tax to employers who have a large number of inexperienced workers.
D) assigning a higher UI tax to employers who have not been in business for very long because these businesses are likely to fail.
Q2) In the face of declining demand,unions usually tend to favor laying off workers rather than lowering wages.Which of these factors would not explain why this occurs?
A) Workers with less seniority are laid off first.
B) Union leaders are elected by majority vote.
C) Lay-offs usually only affect a small fraction of the work force.
D) Most union members are willing to lose their jobs rather than accept even a small cut in wages.
Q3) What is structural unemployment? How does structural unemployment arise on a geographic basis?
Q4) Does the unemployment insurance payroll tax encourage layoffs? Why or why not?
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Page 16
Chapter 15: Inequality in Earnings
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Q1) Technological change
A) is the equivalent of a decrease in the price of capital.
B) is the equivalent of an increase in international trade.
C) will always decrease the demand for less-educated workers.
D) will always decrease the demand for well-educated workers.
Q2) Which of the following best describes the statement "Earnings at the 80th percentile were $20,000"?
A) 80% were earning $20,000 or less.
B) 80% were earning $20,000 or more.
C) The average earnings of those in the top 80% was $20,000.
D) The average earnings of those in the bottom 80% was $20,000.
Q3) The increase in wage inequality has been more rapid in the United States than in other industrialized countries for all the following reasons EXCEPT
A) the supply of skilled workers has grown less quickly in the United States.
B) wage determination is more decentralized in the United States.
C) unskilled workers are retrained more quickly in the United States.
D) unemployment rates among unskilled workers have risen more rapidly in other countries.
Q4) Identify the major changes in earnings inequality in the U.S.since 1980.
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Chapter 16: The Labor-Market Effects of International Trade and Production Sharing
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Q1) What is the Trade Adjustment Assistance program?
Q2) What is production sharing?
Q3) With differing comparative advantages,nations who trade (compared to when they did not trade)
A) get more of the good that they have the comparative advantage in but less of other goods.
B) get less of all goods, but are better off because they can get the mix of goods they want.
C) will only be better off if they export more than they import.
D) can get more of all goods.
Q4) When companies outsource jobs to foreign countries,the price of the outsourced inputs is effectively reduced.The cross-wage effect on the demand for other workers will be positive
A) if the substitution effect dominates the scale effect.
B) only if the substitution effect is positive.
C) if the scale effect dominates the substitution effect.
D) only if the reduction in prices increases the real wage of all workers.
Q5) Does more open international trade cause the wage level in a country to converge to the wage level paid in the rest of the world?
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