Social Policy and the Labor Market Final Exam
Course Introduction
This course examines the dynamic relationship between social policy and the labor market, focusing on how government interventions, welfare programs, and labor regulations shape employment opportunities, income distribution, and overall social welfare. Students will analyze the impact of policies such as minimum wage laws, unemployment benefits, social insurance, family leave, and anti-discrimination measures on various groups within society. Through empirical case studies and theoretical frameworks, the course explores how social policy can address labor market inequalities and adapt to challenges such as globalization, technological change, and demographic shifts.
Recommended Textbook
Modern Labor Economics Theory and Public Policy 11th Edition by Ronald G. Ehrenberg
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Chapter 1: Introduction
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Q1) A regression of Y = a + bX yields values of a = 4.0 and b = -2.7. This indicates that the slope of the regression line is
A) 4.0.
B) -4.0.
C) 2.7.
D) -2.7.
Answer: D
Q2) If all parties gain from a transaction,
A) the government must mandate that transaction.
B) the transaction must be a Pareto improvement.
C) the transaction will not be voluntary for some parties.
D) the transaction will be redistributional.
Answer: B
Q3) Redistributional transactions
A) are never voluntary.
B) should not occur.
C) are usually facilitated by the government.
D) are not Pareto efficient.
Answer: C
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Page 3
Chapter 2: Overview of the Labor Market
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Q1) Given the data in Table 2.1, the labor force participation rate is
A) 54%.
B) 65%.
C) 70%.
D) 80%.
Answer: C
Q2) Which of the following events could explain why wages and employment could fall in a competitive labor market?
A) The demand curve shifts right and up.
B) The demand curve shifts left and down.
C) The supply curve shifts left and up.
D) The supply curve shifts right and down.
Answer: B
Q3) Because workers choose between various employers offering the same type of job based primarily on wages,
A) the market demand curve for chefs is downward sloping.
B) the market supply curve for chefs is upward sloping.
C) the firm supply curve for chefs is vertical.
D) the firm supply curve for chefs is horizontal.
Answer: D
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Chapter 3: The Demand for Labor
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Q1) Referring to Table 3.1, which is of the following answers is INCORRECT? If pots sell for $20 each then
A) the marginal revenue product of labor of the second worker is $260.
B) the marginal product of the third worker is five pots.
C) the marginal revenue from selling the eighteenth pot is $20.
D) the marginal revenue product of labor equals the marginal product of labor multiplied by the additional revenue that is received per unit of output.
Answer: A
Q2) Diminishing marginal returns occur because
A) hiring more employees means that each has less capital with which to work.
B) it is more difficult to manage a firm as the size of the workforce and capital stock both grow.
C) the best employees will always be hired first.
D) hiring more employees means that they will subdivide tasks and therefore become more efficient.
Answer: A
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Chapter 4: Labor Demand Elasticities
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Q1) 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
Q2) Other things equal, an elastic demand for an industry's output will tend to make the industry's own wage elasticity of demand
A) high.
B) low.
C) positive.
D) zero.
Q3) Which of the following factors would allow a union to raise wages while losing fewer jobs?
A) the demand for output becomes more elastic due to world competition.
B) labor costs are a large share of the total cost of producing output.
C) the opening up of other markets around the world where output can also be produced.
D) modernizing plants is unlikely because the demand for output is not growing.
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Page 6
Chapter 5: Frictions in the Labor Market
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Q1) Members of certain groups have the right to sue employers if discriminated against. Other things the same, then according to the model of quasi-fixed costs, this right will tend to
A) reduce their wage.
B) reduce their employment.
C) increase their turnover rate.
D) reduce their unemployment rate.
Q2) A mandated increase in overtime pay is likely to
A) raise the average costs of labor, even if all overtime hours were eliminated.
B) cause an increase in labor hours due to the scale effect.
C) cause employers to increase straight-time hourly wages to compensate (because of the "package" agreed upon).
D) cause an increase in labor hours due to the substitution effect.
Q3) Statistical discrimination is
A) using statistics to judge the average characteristics of a group of workers.
B) judging one person according to a group to which he or she belongs.
C) using statistics in hiring.
D) firing people due to low average productivity.
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Chapter 6: Supply of Labor to the Economy: the Decision to Work
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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) An increase in nonlabor income due to a rise in the value of stocks and bonds will cause
A) a pure income effect.
B) a pure substitution effect.
C) both an income and a substitution effect.
D) neither an income nor a substitution effect.
Q3) If a worker's desired hours of labor do not change after a decrease in his wage rate, then
A) his income effect dominates his substitution effect.
B) his substitution effect dominates his income effect.
C) his income and substitution effects are of equal magnitude.
D) his income and substitution effects are small in absolute value.
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Chapter 7: Labor Supply: Household Production, the Family, and
the Life Cycle
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Q1) A single mother is currently paying childcare cost of $10 an hour and she works 8 hours a day. The government then provides "free" child care, raising the property tax on the mother's home by $80 a day. The effect of this event will be to
A) cause the mother to work less hours.
B) cause the mother to work the same hours.
C) cause the mother to work more hours.
D) cannot tell without knowing which effect dominates: the income or substitution effect.
Q2) The "added worker" effect would tend to make the size of the labor force ________ during a recession.
A) increase
B) decrease
C) remain unchanged
D) either increase or decrease
Q3) If someone enjoys household production (such as raising children) this
A) would be shown by a shift in his budget constraint.
B) will make his household production isoquant curves flatter than otherwise.
C) is the same as being more productive in household production.
D) will make his household production isoquant curves steeper than otherwise.
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Chapter 8: Compensating Wage Differentials and Labor
Markets
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Q1) High-paying jobs are also associated with generous benefits because
A) benefits which cost $100 generally increase utility by more than $100 in cash.
B) high-paid workers can benefit from the tax advantages given to benefits.
C) employers know how to spend money better than their employees.
D) high-paid workers are risk neutral.
Q2) A mandated change in vesting to make all workers become fully vested sooner would
A) increase utility of all workers.
B) increase utility of workers who plan to stay with a company for the length of their time in the labor force.
C) probably cause firms affected by the legislation to decrease wages.
D) probably cause firms not affected by the legislation to increase wages.
Q3) 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.
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Chapter 9: Investments in Human Capital: Education and Training
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Q1) Employees tend to obtain on-the-job training
A) at an increasing rate during their careers.
B) all at once, early in their careers.
C) only at the end of their careers.
D) over a number of years, at a declining rate over their careers.
Q2) 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.
Q3) Firms use signals to estimate productivity so that they can
A) pay a low wage to all workers.
B) pay the same wage to all workers.
C) save on the costs of more accurate estimates.
D) minimize labor costs.
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11
Chapter 10: Worker Mobility: Migration, Immigration, and Turnover
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Q1) In the past, China limited the movement of workers from rural to urban areas. When it got rid of these limits, one would expect
A) urban wages to rise in order to attract rural workers.
B) rural wages to fall as workers leaving depress the rural area.
C) national output to rise as workers are better matched with employers.
D) national output to fall due to higher total mobility costs.
Q2) As long as immigrants are paid their marginal product and pay more in taxes than they consume in government benefits, then an increase of immigrants will cause
A) aggregate income of natives to increase.
B) average wages of workers to increase.
C) individual incomes of all workers to increase.
D) average wages of workers to stay the same.
Q3) Which of the following does NOT explain why people are less likely to move long distances than short distances?
A) information costs
B) psychic costs
C) monetary costs
D) differences in available salaries
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Chapter 11: Pay and Productivity: Wage Determination
Within the Firm
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Q1) A company has a merit pay plan based on the relative performances of workers teams. Each worker is a team gets the same wage as other team members, but those in more productive teams get higher wages. Which of the following would NOT explain why this incentive might be better than other methods for motivating workers to work harder?
A) If a worker works harder, it increases the productivity of other team members.
B) If a team works harder, it does not affect the productivity of other teams.
C) One worker can easily sabotage the productivity of other workers.
D) One team can easily sabotage the productivity of other teams.
Q2) Which of the following would NOT (even if true) explain why wages rise with job tenure?
A) Workers become more productive the longer they are with the firm.
B) Over time, the firm is able to dismiss less productive workers.
C) Workers acquire more specific human capital the longer they are with the firm.
D) Starting with a lower wage and then letting wages rise with job tenure reduces the present value of wages paid to a worker by an employer.
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Page 13
Chapter 12: Gender, Race, and Ethnicity in the Labor Market
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Sample Questions
Q1) Customer discrimination will cause
A) segregated workplaces.
B) no wage differentials.
C) firms to give up profits to maximize utility.
D) discriminating customers to pay lower prices.
Q2) Comparable worth analysis in Minnesota found that
A) measured worth of most jobs was completely unrelated to pay.
B) a regression of measured worth versus pay yielded a horizontal line.
C) jobs with higher measured worth received higher pay.
D) jobs with higher measured worth received lower pay.
Q3) 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
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Chapter 13: Unions and the Labor Market
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Q1) 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
Q2) Suppose all textile workers in the United States formed a union. Which of the following will make it more likely the union will ask for a larger wage increase (assuming the union cares about both higher wages and retaining jobs)?
A) Labor costs represent a large share of textile production costs.
B) Textile firms will not invest in capital substituting for labor in producing textiles because textiles is a declining industry.
C) Labor is a good substitute for capital.
D) Textile buyers consider U.S. textiles a good substitute for non-U.S. made textiles.
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15
Chapter 14: Unemployment
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Q1) If the unemployment rate increases
A) the employment rate must decrease.
B) the employment rate must increase.
C) the employment rate will generally decrease by the same amount.
D) the employment rate may either increase or decrease.
Q2) A reservation wage is
A) the lowest wage a worker will accept.
B) the lowest wage a company will offer.
C) the highest wage a company will offer.
D) the wage at which a company's profits are maximized.
Q3) An increase in an individual's reservation wage
A) will increase the duration of the individual's unemployment but not affect the expected wage.
B) will increase the individual's expected wage but not affect the duration of unemployment.
C) will not change the individual's duration of unemployment.
D) will increase both the individual's duration of unemployment and expected wage.
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Page 16
Chapter 15: Inequality in Earnings
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Q1) If all incomes were to fall by ten percent (due to deflation, for example) then the variance of income will
A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.
Q2) Among male college graduates, returns to experience have ________ since 1980, tending to
A) increased; equalize earnings
B) increased; increase earnings inequality
C) decreased; equalize earnings
D) decreased; increase earnings inequality
Q3) If a number of new workers enter the labor force and all of them find jobs at the mean level of wages, then this will cause the variance of wages to A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.
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Chapter 16: The Labor Market Effects of International Trade and
Production Sharing
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Q1) When Canada and the United States moved to reduce tariffs, which of the following occurred?
A) Canada's overall employment rate fell.
B) Canadian workers displaced by U.S. trade found it difficult finding new jobs.
C) employment fell in the Canadian industries most directly competing with imports from the United States
D) All of the above
Q2) A nation is more productive when
A) more jobs are needed to produce any given level of output.
B) workers stay in their current.
C) it takes fewer jobs and resources to produce a given amount of goods.
D) consumers cannot change which goods they buy when this results in the loss of some jobs.
Q3) Wage convergence is an example of
A) the law of one price.
B) the compression of wage rates across skill levels within a firm.
C) the propensity of wages to converge to marginal productivities.
D) all of the above
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