Wage Theory and Policy Test
Bank
Course Introduction
Wage Theory and Policy explores the fundamental principles and analytical frameworks underlying the determination of wages in various labor markets. The course examines classical, neoclassical, and contemporary wage theories, considering factors such as labor supply and demand, market structure, skill differentials, mobility, and bargaining power. Students analyze the impact of minimum wage laws, collective bargaining agreements, and government wage policies on income distribution and labor market equilibrium. Emphasis is placed on the historical development of wage policy, empirical studies, and current debates about wage inequality, gender and race wage gaps, and the effects of globalization and technological advancements on wage structures.
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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Chapter 1: Introduction to Labor Economics
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Sample Questions
Q1) An outward shift in the labor demand curve implies that.
A)employers are now looking to hire more workers at any given wage.
B)employers are now looking to hire more workers if the wage increases.
C)employers are now looking to hire fewer workers regardless of the wage.
D)demand for the firm's output likely fell.
E)a greater number of workers are now more willing to work at any given wage.
Answer: A
Q2) Which is not a decision made by potential workers in the United States?
A)Deciding whether or not to participate in the labor force.
B)Determining how to divide one's time between work and leisure.
C)Choosing how much to produce to maximize firm profit.
D)Choosing how much education to receive.
E)Deciding which occupation to pursue.
Answer: C
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3
Chapter 2: Labor Supply
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Sample Questions
Q1) What would a person do if the market wage is less than his or her reservation wage?
A)The person will enter the labor market.
B)The person will work as much as possible.
C)The person will work more hours as the wage falls further.
D)The person will be unemployed.
E)The person will not participate in the labor force.
Answer: E
Q2) Which of the following is not a property of standard indifference curves in a leisure-consumption model?
A)Indifference curves tend to be downward sloping.
B)Higher indifference curves (to the northeast) indicate higher levels of utility.
C)Indifference curves tend to be convex to the origin.
D)There is an indifference curve passing through every leisure-consumption bundle.
E)Indifference curves intersect one another.
Answer: E
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4
Chapter 3: Labor Demand
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Sample Questions
Q1) Why is the short-run labor demand curve less elastic relative to the long-run labor demand curve?
A)Because firms care about changes in wages in the short-run but not in the long-run.
B)Because firms are better able to substitute capital for labor in the long run compared to the short run.
C)Because labor is a normal good.
D)Because a perfectly competitive firm can always pay lower wages in the long run.
E)Because isocost curves get shallower when the wage increases.
Answer: B
Q2) If unskilled labor and capital are substitutes,
A)demand for unskilled labor increases when the price of capital decreases.
B)the cross-elasticity between unskilled labor and capital is positive.
C)the price of unskilled labor decreases when the price of capital increases.
D)the price of capital is increasing.
E)the demand curve for capital is upward-sloping.
Answer: B
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Chapter 4: Labor Market Equilibrium
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Sample Questions
Q1) Which of the following does not describe a perfectly discriminating monopsonist?
A)The firm hires different workers at different wages.
B)The firm hires workers to the point where the labor supply curve intersects the firm's labor demand curve.
C)The firm's marginal cost of labor equals the labor supply curve faced by the firm.
D)The firm uses fewer hours of labor than it would if it were in a competitive market.
E)The wage-labor outcome is efficient.
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.
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6
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) 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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Chapter 6: Human Capital
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Sample Questions
Q1) Present value calculations allow one to determine
A)the return to an uncertain asset.
B)the present-day costs and/or benefits of various options.
C)the utility value of a particular option.
D)the social cost of financial calculations.
E)the real wage.
Q2) Suppose 40 percent of all potential workers are highly skilled and contribute $50,000 to the firm each year. The remaining 60 percent of potential workers are less skilled and contribute only $30,000 to the firm each year. When schooling is not used as a signaling device, how much is the firm willing to pay a worker chosen at random?
A)$30,000
B)$34,000
C)$38,000
D)$42,000
E)$50,000
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Chapter 7: The Wage Structure
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Sample Questions
Q1) Social mobility refers to
A)the ability for a worker to move up in a firm's hierarchy.
B)the ability for a worker to increase his or her human capital.
C)the link between the skills and income of parents and children.
D)the relationship between human capital and wages.
E)the degree to which society dictates the wage distribution.
Q2) Which of the following statements regarding the increase in supply of high-skill labor in the United States since 1960 as measured by education level is not true?
A)The percent of workers without a high school degree has fallen dramatically since 1960.
B)The percent of workers with a high school degree has fallen dramatically since 1960.
C)The percent of workers with a college degree has increased dramatically since 1960.
D)The percent of workers with an advanced degree has increased dramatically since 1960.
E)The supply of highly-skilled women to the workforce has increased dramatically since 1960.
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Chapter 8: Labor Mobility
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Sample Questions
Q1) Which one of the following statements regarding job turnover is false for the U.S. labor market?
A)The quit rate is almost always higher than the layoff rate.
B)The overall separation rate is much higher for younger workers than older workers.
C)The rate of job loss is highest for the least educated.
D)Workers who have a lot of seniority are likely to switch to a different firm when their wage-age profile begins to flatten out.
E)Men are much more likely to hold a long term job than are women.
Q2) The human capital externality refers to
A)an additional tax placed on institutions of higher learning.
B)the government's subsidization of institutions of higher learning.
C)the quality of the environment in which one lives.
D)the cohort affect from selection bias.
E)the environmental costs associated with rapid population growth.
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10
Chapter 9: Labor Market Discrimination
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Sample Questions
Q1) What is the main theoretical implication regarding the standard employer-based discrimination model?
A)Most firms are discriminatory.
B)Workers don't care if firms are discriminatory.
C)Discrimination is not profitable.
D)Discrimination can only occur if there are exactly two types of labor (e.g., white and black).
E)Discrimination can only occur in competitive labor markets.
Q2) A large employer gives each new hire an aptitude test, which is scored from 1 to 20.
Let T be a worker's score on the test. The firm then pays the new worker a wage of w = 0.6T + 0.4G where G is the average test score for the worker's gender-16 for women; 12 for men. How much more is a woman paid than a man when both scored a 10 on the test?
A)$0.20
B)$0.40
C)$0.80
D)$1.60
E)$3.20
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Page 11
Chapter 10: Labor Unions
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Sample Questions
Q1) Which of the following is a reason why the union wage gap might under-estimate the actual effect unions have on wages?
A)Unions typically attract the most productive workers to the application pool.
B)Non-union firms may pay higher wages in order to prevent its workers from unionizing.
C)Non-union jobs will have excess labor available to them because firms will restrict entry into union jobs, and competition for this excess labor competes down the observed non-union wage.
D)Unions target high-paying firms.
E)The union wage gap can be over-estimated, but never underestimated.
Q2) The union wage gap for private sector unions in the United States is presently on the order of
A)2%.
B)8%.
C)15%.
D)28%.
E)39%.
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Chapter 11: Incentive Pay
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Sample Questions
Q1) When considering the running of a corporation, there is a principal-agent problem between shareholders and the CEO because
A)shareholders want the firm to maximize the firm's share price while the CEO wants to maximize profits.
B)the CEO is paid in part with stock options.
C)shareholders cannot observe all of the CEO's decisions.
D)shareholders sign confidentiality agreements.
E)shareholders require the firm to pay a dividend.
Q2) What happens to the piece rate if there is a ratchet effect?
A)The piece rate decreases over time.
B)The piece rate increases over time.
C)The piece rate is replaced with a time rate.
D)The piece rate is replaced with a salary contract.
E)The piece rate is only paid to the least productive workers.
Q3) If designed correctly, tournaments
A)discourage competition.
B)reward players according to their ranked productivity.
C)elicit equal effort from all workers.
D)always reward a single winner.
E)reduce the applicant pool to just those workers with the best degrees.
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Chapter 12: Unemployment
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Q1) 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%
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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