Wages and Employment Exam Preparation Guide
Course Introduction
This course explores the fundamental principles and theories related to wage determination and employment in labor markets. Students will examine how wages are set, the factors influencing wage differentials, and the role of institutions such as minimum wage laws, unions, and government policies. Topics include labor demand and supply, human capital investment, discrimination in the workplace, productivity, and the impacts of technological change and globalization on wages and employment levels. Through case studies and empirical analysis, students will develop a comprehensive understanding of how economic, social, and policy factors interact to shape labor market outcomes.
Recommended Textbook
Modern Labor Economics Theory and Public Policy 12th Edition by Ronald G. Ehrenberg
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Chapter 1: Introduction
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Q1) Minimum wage laws often block transactions between employers and workers that would otherwise occur at wage rates below the minimum.As a result,minimum wage laws tend to
A) improve equity at the expense of efficiency.
B) improve efficiency at the expense of equity.
C) improve both equity and efficiency.
D) reduce both equity and efficiency.
Answer: A
Q2) Which of the following is NOT a characteristic of a typical positive economic model?
A) realistic assumptions
B) makes predictions that can be proven false
C) the assumption that people weigh the costs and benefits of their various alternatives
D) makes assumptions that ignore the complexity of behavior
Answer: A
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3
Chapter 2: Overview of the Labor Market
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Q1) If the price of a product decreases due to a decrease in demand,then
A) the firm moves to the left along the labor demand curve.
B) the firm moves to the right along the labor demand curve.
C) the labor demand curve shifts to the left.
D) the labor demand curve shifts to the right.
Answer: C
Q2) If more people enter the labor market for architects,then
A) both the wage rate and the employment level will increase.
B) both the wage rate and the employment level will decrease.
C) the wage rate will increase and the employment level will decrease.
D) the wage rate will decrease and the employment level will increase.
Answer: D
Q3) A worker's total compensation consists of A) wages.
B) earnings.
C) earnings plus in-kind benefits.
D) earnings plus in-kind benefits plus deferred benefits.
Answer: D
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4
Chapter 3: The Demand for Labor
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Q1) If employers are paid a subsidy of $0.75 per hour for hiring teenaged workers,then
A) the teenagers' wage rate will usually increase by less than $0.75 per hour.
B) the teenagers' wage rate will usually increase by more than $0.75 per hour.
C) the teenagers' wage rate will usually increase by exactly $0.75 per hour.
D) the teenagers' wage rate will usually decrease.
Answer: A
Q2) A worker's hourly wage is $25 and output sells for $5 a unit.What is the minimum marginal product a worker must produce in order for a competitive employer to break even when hiring the worker?
A) 1/5
B) 5
C) 25
D) 125
Answer: B
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Chapter 4: Labor Demand Elasticities
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Q1) Since the minimum wage was first legislated,a concern has been that it will reduce employment among groups it is intended to benefit.Despite this concern,adverse employment consequences of changes in the minimum wage have been relatively small.Use a two sector model to explain why adverse employment effects of a minimum wage increase might be expected to be small.
Q2) 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.
Q3) Some types of technological change (e.g.,mass production of personal computers or miniaturization of components)reduce the cost of capital.Use the concept of cross-wage elasticity to discuss how such technological change could be good for some types of workers and bad for other types of workers.
Q4) The minimum wage is a relatively ineffective means by which to reduce poverty.Agree or disagree.Explain your reasoning.
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Page 6
Chapter 5: Frictions in the Labor Market
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Q1) What is meant by the term monopsony? Under what circumstances do monopsonistic conditions arise in the labor market?
Q2) A quasi-fixed cost of labor is a cost that A) is expected to change over time.
B) is proportional to the number of hours worked.
C) is proportional to the number of workers hired.
D) is proportional to the amount of capital used.
Q3) If a worker incurs the entire cost of general training,and if mobility costs are low,then we would expect that the employee's wage will be
A) equal to his or her marginal revenue product of labor.
B) greater than his or her marginal revenue product of labor, due to the training received.
C) less than his or her marginal revenue product of labor, to pay for the cost of the training received.
D) either greater or less than his or her marginal revenue product of labor.
Q4) Explain what is meant by the term quasi-fixed cost of employment.Give some examples of quasi-fixed costs of employment.
Q5) What is the overtime pay premium? Discuss its origin and who it covers.
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Chapter 6: Supply of Labor to the Economy: The Decision to Work
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Q1) If Alice's wage increases from $6.00 per hour to $6.50 per hour,then
A) she will want to work more hours than before her raise.
B) she will want to work fewer hours than before her raise.
C) she will want to work the same number of hours as before her raise.
D) she may want to work more, fewer, or the same number of hours as before her raise.
Q2) If an individual's income effect is stronger than the individual's substitution effect,a wage increase will cause that individual to
A) increase hours worked, and this increase will be larger than if the same change in wealth were caused by a change in non-labor income.
B) decrease hours worked, but this decrease will be smaller than if the same change in wealth were caused by a change in non-labor income.
C) decrease hours worked, and this decrease will be larger than if the same change in wealth were caused by a change in non-labor income.
D) increase hours worked, but this increase will be smaller than if the same change in wealth were caused by a change in non-labor income.
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Chapter 7: Labor Supply: Household Production, the Family,
and the Life Cycle
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Q1) 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.
Q2) 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.
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Page 9
Chapter 8: Compensating Wage Differentials and Labor
Markets
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Q1) 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.
Q2) Utility maximizing workers are interested in both the pecuniary and nonpecuniary aspects of their jobs.What is meant by nonpecuniary in this context? Give some examples of nonpecuniary aspects of a job.How would the nonpecuniary aspects of a job affect compensation?
Q3) Suppose that working condition X is an undesirable working condition.Justin and Jessica both have distaste for working condition X,but Justin's aversion to working condition X is greater than Jessica's aversion.Draw a graph with a representative indifference curve for both Justin and Jessica,with the wage rate on the vertical axis and the level of working condition X on the horizontal axis.Explain why the indifference curves look as you have drawn them.
Q4) What are the major insights of the hedonic model of compensating wage differentials?
Page 10
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Chapter 9: Investments in Human Capital: Education and Training
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Q1) Which of the following is NOT an investment in human capital?
A) buying stock in a company that publishes textbooks
B) attending college
C) learning how to operate new computer software
D) moving to another state in search of better job opportunities
Q2) If both the demand for and the supply of college graduates shift to the left,then the equilibrium wage would ________ and the number of college graduates would ________.
A) increase; change ambiguously
B) change ambiguously; increase
C) decrease; change ambiguously
D) change ambiguously; decrease
Q3) If average lifetime earnings of both high school and college graduates double,then the number of people attending college will consequently
A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.
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Chapter 10: Worker Mobility: Migration, Immigration, and Turnover
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Q1) Suppose you have data for two groups of immigrants that are alike in age and educational status but who differ in that one group voluntarily immigrated (refer to them as economic immigrants)while individuals in the other group are political refugees that fled their home country and are unable to return.Draw a graph that plots earnings on the vertical axis against years in country on the horizontal axis for each group.(Note that your graph will be like an age/earnings profile graph except that time in country rather than worker age (which is controlled for here)is on the horizontal axis.)Explain why the profiles look as you have drawn them.
Q2) When compared to the earnings of political migrants,the earnings of economic migrants
A) start out lower, and increase more slowly.
B) start out lower, but increase more quickly.
C) start out higher, but increase more slowly.
D) start out higher, and increase more quickly.
Q3) An increase in the number of immigrants causes
A) the labor demand curve to shift to the left.
B) the labor supply curve to shift to the left.
C) the labor supply curve to shift to the right.
D) the labor demand curve to become flatter.
Page 12
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Chapter 11: Pay and Productivity: Wage Determination
within the Firm
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Q1) Which of the following factors will favor paying compensation by time rather than by output?
A) Output is easily measured and monitored.
B) The production of output requires the cooperation of many workers across the firm.
C) The industry's output is not affected by national economic conditions.
D) Workers are risk-seeking rather than risk-averse.
Q2) Which of the following types of pay is NOT linked to output?
A) commissions
B) profit sharing
C) hourly wages
D) piece-rate pay
Q3) 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
13
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Chapter 12: Gender,Race,and Ethnicity in the Labor Market
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Q1) What is affirmative action?
Q2) Employer discrimination implies that
A) some employers give up profits to avoid hiring one group.
B) if the group discriminated against is small, there will be a wage differential in the market.
C) there will be no market wage differential.
D) co-workers and customers prefer one group of workers over another.
Q3) Federal antidiscrimination programs appear to
A) have made no difference in raising relative earnings of black workers.
B) have made little difference raising relative earnings of black workers, probably because individual programs have had only small effects.
C) have helped to raise relative earnings of black workers.
D) have hurt the relative earnings of black workers.
Q4) How much of the pay gap between full-time male and female workers does the empirical evidence suggest is explained by differences in observed characteristics related to productivity?
Q5) What are the dimensions of gender discrimination in the labor market?
Q6) What is the dual labor market explanation of discrimination?
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Chapter 13: Unions and the Labor Market
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Q1) If one sector of the economy becomes unionized and there is a spillover effect then
A) wages will increase in both sectors.
B) wages will increase in the unionized sector, but may either increase or decrease in the non-union sector.
C) wages will stay unchanged in both sectors.
D) wages will increase in the unionized sector, but decrease in the non-unionized sector.
Q2) The potential gains to a union in terms of wages and employment will be greatest if the firm's demand for labor is
A) elastic.
B) inelastic.
C) of unit elasticity.
D) horizontal.
Q3) What are the two types of unions operating in the United States? What do unions do?
Q4) What is the union relative wage advantage? What is the estimated value of the union relative wage advantage?
Q5) Do unions increase worker productivity?
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Chapter 14: Unemployment
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Q1) Wait unemployment is a form of ________ unemployment.
A) structural
B) frictional
C) cyclical
D) structural and cyclical
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.
Q4) What is the wage curve? What is the efficiency wage explanation of the wage curve?
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Chapter 15: Inequality in Earnings
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Q1) Compared to other developed countries,where does the U.S.stand in terms of earnings inequality? What may account for this position?
Q2) Which of the following will reduce inequality?
A) The rich and poor earn more, but the rich earn proportionately more.
B) The poor and rich earn less, but the earnings of the rich go down proportionately more.
C) The poor and the rich earn proportionately more.
D) The poor and rich earn less, but the earnings of the poor go down proportionately more.
Q3) Since 1980 the real wages of unskilled workers in most of Western Europe have ________ and this helps explain why their unemployment rates have ________.
A) fallen; fallen
B) not fallen; fallen
C) fallen; risen
D) not fallen; risen
Q4) How is it that technological change could have a polarizing effect on the labor market?
Q5) How can skill-biased technological change account for increased earnings inequality?
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Chapter 16: The Labor-Market Effects of International Trade and
Production Sharing
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Q1) Mr.X,an American,loses his job due to foreign competition.Mr.Y,an American,loses his job because other Americans shifted their demand to other goods produced in America.Both lose when these events occur.Excluding the utility of foreigners from consideration,these events are Pareto optimal when
A) Mr. X is compensated for his loss.
B) Mr. Y is compensated for his loss.
C) Both Mr. X and Mr. Y are compensated for their loss.
D) Both events are optimal without any compensation to either Mr. X or Mr. Y.
Q2) Meta-analysis of Active Labor Market Policies found that the most effective method of helping displaced workers was
A) reducing unemployment benefits when displaced workers do not put sufficient effort into searching for a new job.
B) retraining programs to help workers to find new jobs.
C) laws that make it more costly for employers to fire workers.
D) employment subsidies to employers (and not to displaced workers) to hire displaced workers.
Q3) What is the Trade Adjustment Assistance program?
Q4) What is production sharing?
Page 18
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