Public Policy and Labor Markets
Practice Questions
Course Introduction
This course explores the intersection of public policy and labor market dynamics, examining how governmental decisions shape employment, wages, labor force participation, and income distribution. Students will analyze key labor market institutions, including minimum wage laws, unemployment insurance, workplace regulations, and collective bargaining. The course emphasizes empirical approaches and real-world case studies to understand the effects of policy interventions on labor market outcomes. Through discussion of recent policy debates and reforms, students gain insight into the challenges of crafting effective labor policies that promote fairness, efficiency, and economic growth.
Recommended Textbook Labor Economics 6th 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 part labor economics concerns:
A)How labor markets work.
B)The study of education decisions.
C)The study of how households decide where to live.
D)The study of income inequality.
E)All of the above.
Answer: E
Q2) The government is a player in the U.S.labor market in part because the government
A)determines who can go to college.
B)assigns potential workers to particular industries.
C)sets workplace worker safety regulations.
D)suggests a minimum wage for firms to pay.
E)funds employer-based health insurance benefits.
Answer: C
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Chapter 2: Labor Supply
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Sample Questions
Q1) According to the substitution effect, an increase in the wage rate will lead the worker to
A)work more hours if leisure is a normal good.
B)work more hours if leisure is an inferior good.
C)work fewer hours if leisure is a normal good.
D)work fewer hours if leisure is an inferior good.
E)work more hours regardless of whether leisure is normal or inferior.
Answer: E
Q2) Of the 500,000 people (age 16+) in a particular country, 300,000 people are in the labor force.Of these, 240,000 are employed and 60,000 are unemployed.What is the labor force participation rate?
A)25%
B)48%
C)55%
D)60%
E)80%
Answer: D
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Chapter 3: Labor Demand
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Sample Questions
Q1) What is the most accurate description of the value of a worker to the firm?
A)The wage.
B)The firm's total output when holding capital fixed.
C)The firm's average product when holding capital fixed.
D)The dollar value of the worker's output.
E)The dollar value of the average worker's output.
Answer: D
Q2) What is not true when thinking of the firm's objective as a cost-minimization problem rather than as a profit-maximization problem?
A)The slope at any point on any isoquant reveals the marginal rate of technical substitution.
B)The firm chooses labor and capital to minimize its costs.
C)The firm chooses a particular level of output to produce.
D)The price of the output good never enters the decision as to how much labor or capital to employ.
E)The firm will choose labor and capital inputs so that the marginal productivity of labor relative to the marginal productivity of capital equals the price of labor relative to the price of capital.
Answer: B
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Page 5
Chapter 4: Labor Market Equilibrium
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Sample Questions
Q1) If immigrant workers are complementary to native workers, then
A)native workers will be better off with open borders.
B)immigrant workers will receive a higher wage than native workers.
C)immigration will shift the demand for native labor to the left.
D)there will be no immigration surplus.
E)each firm will hire only immigrants or only natives but not a mixture of the two.
Q2) When the government imposes a payroll tax on workers,
A)the effects are identical to the effects had the government imposed the tax on employers.
B)the costs of hiring remain constant.
C)the labor supply curve shifts to the right.
D)total employment remains constant.
E)workers' real wages are unchanged.
Q3) The assumption that a firm operates in a competitive labor market means that
A)the firm offers a real wage rate that is indexed for inflation.
B)the firm faces an upward-sloped marginal cost of labor curve.
C)the firm faces a downward-sloped marginal cost of labor curve.
D)the firm faces a constant wage regardless of how much labor it employs.
E)the firm doesn't use capital in the production process.
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Page 6
Chapter 5: Compensating Wage Differentials
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Q1) Which of the following is not a property of isoprofit curves graphed in Probability of Injury (x-axis) versus Wage (y-axis) space?
A)All points on each isoprofit curve yield the same level of profit.
B)Profit-maximizing firms are indifferent as to where they operate on any given curve.
C)Isoprofit curves going out along the x-axis yield higher profits.
D)Isoprofit curves going up along the y-axis yield higher profits.
E)Isoprofit lines are upward sloping.
Q2) The value of life is calculated by comparing
A)wages to risk levels.
B)risk levels to the number of children in a worker's household.
C)wages to the number of children in a worker's household.
D)average life expectancy by occupation to average risk levels by industry.
E)average wages to the average retirement age.
Q3) A potential implication of OSHA regulation is that
A)the most risk averse workers begin working the riskiest jobs.
B)the hedonic wage function may no longer exist at the safest levels.
C)the hedonic wage function may no longer exist at the riskiest levels.
D)average wages increase.
E)for the same amount of output produced, total production costs will be less.
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Page 7
Chapter 6: Human Capital
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Sample Questions
Q1) 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.
Q2) The wage-schooling locus is
A)downward sloping because education is generally productive.
B)upward sloping because education is generally productive.
C)backward bending.
D)horizontal because wages are unrelated to schooling.
E)vertical because education is a public good.
Q3) What is implied when the wage-schooling profile is drawn as a concave (i.e., increasing at a decreasing rate) function?
A)The marginal return to schooling increases as years of schooling increases.
B)The marginal return to schooling is positive but falling as years of schooling increases.
C)Average wages fall as years of schooling increases.
D)The cost of schooling increases, but at a decreasing rate.
E)The cost of schooling decreases, but at an increasing rate.
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Page 8
Chapter 7: The Wage Structure
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Sample Questions
Q1) In the United States, the poorest 10 percent of households earn approximately what share of total income?
A)2%
B)5%
C)10%
D)20%
E)50%
Q2) From 1965 to 2005, the 90-10 wage gap in the United States has
A)held constant at roughly 100.
B)held constant at roughly 200.
C)held constant at roughly 200 until 1980 and has steadily increased to about 400 since then.
D)held constant at roughly 200 until 1980 and has steadily decreased to under 100 since then.
E)increased steadily from 200 in 1960 to over 500 in 2000.
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Chapter 8: Labor Mobility
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Q1) Which of the following is not likely to prevent some people from migrating?
A)Some people face high financial costs associated with migrating.
B)Some people don't want to leave their family and friends.
C)Having a spouse who has a very well-paying job in the current location.
D)Having a lucrative job offer in a different city.
E)Having a teenage child who does not want to change high schools.
Q2) 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.
Q3) Compared to older workers with several years of experience with one firm, newly hired young workers typically
A)have higher turnover.
B)have more on-the-job training.
C)have more experience.
D)are likely to stay with their job longer.
E)tend to earn more than their experienced colleagues.
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Page 10
Chapter 9: Labor Market Discrimination
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Sample Questions
Q1) One possible measure of gender discrimination is to look at the difference between the average male wage and the average female wage.This is a poor measure of discrimination for all of the following reasons except:
A)Men and women might have different preferences when it comes to supplying labor.
B)Men and women may differ in the return they receive for their skills.
C)Men and women may differ in their overall level of skill.
D)Men and women may differ in their taste for part-time jobs.
E)Men and women may differ in their willingness to accept risky jobs.
Q2) In a discrimination model, nepotism is best described as
A)a desire to maximize profit regardless of who one hires.
B)a preference to hire a certain type of worker, e.g., a worker of one's same race.
C)a preference to hire an integrated workforce.
D)a desire to advance social causes over maximizing profits.
E)hiring minority workers but then firing them quickly.
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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 $50,000 while the average non-union salary is $40,000?
A)10%
B)20%
C)25%
D)40%
E)50%
Q2) Prior to the New Deal legislation of the 1930s that expanded the rights of unions, firms were successful in suppressing union pressures by arguing in court that unions would
A)restrict interstate commerce, which was prohibited by the Sherman Act.
B)use coercive tactics to force workers to join the union.
C)illegally spend dues on political activities.
D)reduce the United State's competitive advantage it had over Germany.
E)fail to protect the rights of children who could not legally join a union.
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Chapter 11: Incentive Pay
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Q1) A standard efficiency wage model pays workers higher wages in order to increase worker efficiency.As a result, firm profits increase and there is a pool of involuntarily unemployed workers.In this model, if the firm's cost of monitoring effort falls,
A)the efficiency wage will fall.
B)the number of shirking workers will fall.
C)firm profits will fall.
D)the firm will increase its number of factory managers.
E)the pool of involuntarily unemployed workers will increase.
Q2) One piece of evidence in favor of the efficiency wage model is that some sectors of the economy pay relatively high wages, whereas other sectors pay lower wages.This supports the efficiency wage model as it seems to provide evidence of what?
A)The existence of dual labor markets.
B)There are compensating differentials being paid depending on the type of work being done.
C)Unemployment is constant across sectors.
D)High-wage firms take advantage of delayed-compensation contracts.
E)Workers voluntarily provide bonds in case they are caught shirking.
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Page 13
Chapter 12: Unemployment
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Sample Questions
Q1) According to the neo-classical model, what would not result from the government levying a tax on firms for each worker the firm lays off?
A)Firms would be less likely to lay off workers.
B)Firms would be less likely to hire workers.
C)Moral hazard would encourage workers to not work as hard as before.
D)The long-run employment rate would increase.
E)Unemployed workers would remain unemployed for longer periods of time.
Q2) If the steady-state unemployment rate for an economy is 5%, and each period 2% of employed workers lose their jobs, what percent of unemployed workers find employment each period?
A)8%
B)18%
C)28%
D)38%
E)48%
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