Deck 8: The Wage Structure

Question 1

Consider the two labor markets shown in the diagram above.The wage rates shown represent:

A)long run equilibrium
B)long run equilibrium if all nonwage aspects of the jobs are identical
C)long run equilibrium provided the workers are in noncompeting groups
D)long run equilibrium if information is perfect and costless

Answer 1

B

Question 2

In 2010,hourly pay (measured in U.S.dollars)was highest in:

A)Sweden
B)Japan
C)U.S.
D)Norway

Answer 2

D

Question 3

Assume that information is perfect,mobility between jobs is costless,and that all nonwage aspects of the two are identical.The outcome shown in the diagram:

A)represents an equilibrium
B)does not represent an equilibrium.The demand for labor in market A will shift rightward,and that in market B will shift leftward until wage rates equalize
C)does not represent an equilibrium.The supply of labor in market A will shift leftward,and that in market B will shift rightward until the wage rates equalize
D)does not represent an equilibrium.The supply of labor in market B will shift leftward,and that in market A will shift rightward until the wage rates equalize

Answer 3

C

Question 4

Which of the following research findings would support an efficiency wage explanation of pay differentials?

A)Firms with higher turnover costs pay lower than average wages
B)Firms with higher costs of detecting shirking pay higher than average wages
C)Pay is positively correlated with human capital investments in a given industry
D)Differences in observable worker characteristics explain most of the variance in pay across industries

Question 5

Of the following industries,2011 average hourly earnings were greatest in:

A)public administration
B)services
C)mining
D)construction

Question 6

Of the following occupational groups,2011 average hourly earnings were greatest among:

A)service workers
B)installation,maintenance,and repair workers
C)production workers
D)management,business,and financial workers

Question 7

If job X pays more than identical job Y,then the wage rates will:

A)remain different if mobility is costless
B)remain different if information is perfect
C)equalize because labor will migrate from X to Y
D)equalize if information is perfect and mobility is costless

Question 8

Heterogeneous jobs are those that:

A)pay identical wages
B)have differing nonwage attributes
C)have identical nonwage attributes
D)require no special skill

Question 9

Suppose that the wage in B is higher because workers perceive disutility of $2 associated with this job relative to A.Assuming that information is perfect and mobility between jobs is costless,we can conclude that:

A)the wage differential between jobs A and B is an equilibrium differential
B)workers will flow from job A to job B
C)workers will flow from job B to job A
D)the demand for labor in B will fall and the demand for labor in A will rise

Question 10

Lower-paid workers often seem to have less desirable working conditions as well because:

A)lower-paid workers tend to have proportionately greater fringe benefits.
B)employers discriminate against unskilled workers
C)the compensating differential for skill often outweighs the compensating differential for poor working conditions
D)the compensating differential for poor working conditions often outweighs the compensating differential for skill

Question 11

Suppose all workers are identical but working for Ajax is more pleasant than working for Acme.In all other nonwage respects the two firms offer the same job characteristics.In equilibrium:

A)the wage at Ajax will be higher than at Acme
B)the wage at Ajax will be lower than at Acme
C)workers will have lower net utility at Acme
D)employment will be higher at Ajax if demand is the same in both markets

Question 12

Suppose that all other nonwage aspects of the jobs in these two markets are identical.We would expect labor supply in B to increase if:

A)the probability of job loss rises in B
B)earnings are more variable in A
C)job safety improves in A
D)there are better prospects for advancement in A

Question 13

All else equal,the wage paid to steelworkers in Youngstown,Ohio will be lower if:

A)the cost of living in Youngstown is lower than elsewhere
B)working in the steel industry is louder and more dangerous than similar jobs
C)steelworkers have less control over their work environment than in similar jobs
D)there are fewer prospects for promotion among steelworkers than in similar jobs

Question 14

People who receive relatively high pay also tend to work in a relatively desirable work environment.This is probably because:

A)employers have imperfect information
B)highly paid and poorly paid workers are in noncompeting groups
C)firms with desirable working conditions are operating off their normal isoprofit curves
D)the differential required to compensate for high skill more than offsets the differential required for poor working conditions

Question 15

Which of the following would tend to increase labor supply to a particular job?

A)The employer cuts back the scope and coverage of the medical plan
B)Vesting in the firm's pension plan is pushed back from 1 year to 5 years
C)The crime rate rises in the city where the job is located
D)The perceived status of the job improves

Question 16

Which of the following is not a source of persistent compensating wage differentials?

A)migration from lower paying jobs to higher paying jobs
B)fringe benefits
C)job status
D)different skill requirements

Question 17

Assuming workers and jobs are identical,if information is perfect and job search and migration are costless,then:

A)labor may or may not flow among employers
B)labor will flow among employers until all wages are equal
C)labor will flow among employers until all economic profits are zero,but wages may be unequal
D)all firms will hire the same number of workers in equilibrium and pay them all the same wage

Question 18

Assuming workers and jobs are identical,if information is perfect but job search and migration are costly,then:

A)labor may or may not flow among employers
B)labor will flow among employers until all wages are equal
C)labor will flow among employers until all economic profits are zero,but wages may be unequal
D)all firms will hire the same number of workers in equilibrium and pay them all the same wage

Question 19

The wage rate paid workers at Flow,Inc.will most likely exceed that at otherwise identical Stock Co.if:

A)Flow,Inc.is a more prestigious firm than Stock Co.
B)earnings are subject to greater variability at Stock,Co.
C)Stock Co.offers better pension and insurance benefits than Flow,Inc.
D)the demand for labor at Stock Co.exceeds the demand for labor at Flow,Inc.

Question 20

Average hourly pay for production workers in the U.S.in 2010 was:

A)higher than in most other industrialized countries in Europe and Asia
B)lower than in most other industrialized countries in Europe and Asia
C)about the same as in most other industrialized countries in Europe and Asia
D)lower than in many other industrialized countries in Europe but greater than in newly industrialized countries such as Singapore,Taiwan,and Korea

Question 21

The firm's isoprofit curve,P,is shown as concave to the origin,reflecting the assumption that:

A)the firm faces a constant trade-off between job safety and wages
B)each successive increase in job safety comes at a decreasing expense to the firm
C)each successive increase in job safety requires a smaller drop in wages to maintain normal profits
D)each successive increase in job safety comes at an increasing expense to the firm

Question 22

Compared to present-oriented people,individuals who are more future-oriented tend to have _______ discount rates and consequently tend to obtain _______ education and earnings:

A)lower; more
B)lower; less
C)higher; more
D)higher; less

Question 23

Consider a worker who faces a tradeoff between wages on the vertical axis and job safety on the horizontal axis.The less averse a worker is to risk of injury on the job,the:

A)lower is the wage earned by the worker
B)steeper is this worker's indifference curves
C)flatter is this worker's indifference curves
D)lower are the profits of this worker's employer

Question 24

As a result of the matching between workers and firms,firm X will pay:

A)a lower wage and provide less job safety than firm Y
B)a lower wage and provide more job safety than firm Y
C)a higher wage and provide less job safety than firm Y
D)a higher wage and provide more job safety than firm Y

Question 25

The hedonic theory of wages predicts that:

A)workers and firms will be matched randomly,but in equilibrium firms will be maximizing profits and workers will be maximizing utility
B)other things equal,workers who value job safety least will tend to work for firms that have the lowest cost of providing safe jobs
C)other things equal,workers who value job safety least will tend to work for firms that have the highest cost of providing safe jobs
D)other things equal,workers who value job safety most will tend to work for firms that have the highest cost of providing safe jobs

Question 26

Which one of the following is a true statement?

A)Workers can never move from one noncompeting group to another
B)Wage differentials caused by the existence of noncompeting groups can persist over time
C)The concept of noncompeting groups applies only to workers in different geographical locations; it does not apply to productivity differences among workers
D)The concept of noncompeting groups explains why wage rates do not fall in a recession

Question 27

All else equal,large firms tend to pay higher wages.This may be explained by all of the following,except:

A)large firms may be more bureaucratic and a less pleasant place to work
B)large firms are more likely to be unionized
C)workers at large firms are more highly specialized,requiring more on-the-job training
D)large firms are more likely to discriminate against women and minorities

Question 28

Which of the following is not predicted by the hedonic theory of wages,all else constant?

A)workers that have strong preferences for particular nonwage amenities will be matched with firms that can provide them most cheaply
B)firms that pay lower wages but offer more amenities have higher than average profits
C)jobs that offer high levels of safety will pay less than those in which working conditions are less safe
D)firms will tend to offer those nonwage amenities that they can provide most cheaply

Question 29

In equilibrium:

A)worker A will work for firm X; worker B will work for firm Y
B)worker A will work for firm Y; worker B will work for firm X
C)both workers will work for firm X
D)both workers will work for firm Y

Question 30

"The high psychic costs of leaving friends and family deter migration in response to wage differentials." This statement reflects the existence of:

A)geographic immobilities
B)sociological immobilities
C)institutional immobilities
D)wage immobilities

Question 31

An example of a sociological immobility is:

A)ties to family and friends prevent workers from moving to a region with relatively high wages
B)craft unions limit the access of nonunion workers to apprenticeship positions
C)state governments require workers in many jobs to obtain a license
D)the so-called "glass ceiling" (a form of discrimination)prevents women from moving into certain high-paying managerial jobs

Question 32

The highest level of utility the worker can possibly achieve is:

A)I₁,if P is a normal-profit isoprofit curve
B)I₂,if P is a normal-profit isoprofit curve
C)I₁,if P represents a positive economic profit
D)I₃,if P is a normal-profit isoprofit curve

Question 33

Fringe benefit packages differ substantially from one firm to the next because:

A)labor market information is costless
B)adjustment periods tend to be short
C)worker mobility costs are low
D)firms may structure their fringe benefit packages to attract specific types of workers

Question 34

The shape of the worker's indifference curves-I₁,I₂,and I₃-indicates that:

A)the worker faces a constant trade-off between job safety and wages
B)for each successive reduction in job safety,greater increases in wages are required to maintain the same utility
C)for each successive reduction in job safety,smaller increases in wages are required to maintain the same level of utility
D)for each successive reduction in job safety,smaller reductions in wages are required to maintain the same utility

Question 35

Which one of the following best explains the differences in the isoprofit curves of the two firms?

A)X has lower profits than Y because X is paying higher wages
B)X has higher profits than Y because X's high wages attract workers who are less relaxed and thereby less likely to shirk on the job
C)X pays a higher cost than Y for providing additional informality
D)Y pays a higher cost than X for providing additional informality

Question 36

From the indifference curves,we can infer that worker A:

A)has a stronger taste for job safety relative to income than worker B
B)has the same taste for job safety relative to income than worker B
C)has a stronger taste for income relative to job safety than worker B
D)has a lower skill level than worker B

Question 37

Imperfect and costly labor market information will likely result in:

A)wages converging to a common rate
B)a distribution of wages around the mean for any occupation,independently of compensating differentials
C)an inverse relationship between wages and the risk of injury on the job
D)instantaneous adjustment to equilibrium in response to short-run wage differentials

Question 38

Consider a worker who faces a trade-off between higher wages and a more relaxed work environment as shown in the diagram.A worker whose indifference curves are relatively steep:

A)places a relatively high value on additional informality on the job
B)will tend to work at a firm with a relatively informal environment,like firm X
C)will not willingly sacrifice informality for higher wages
D)does not place a relatively high value on additional informality on the job

Question 39

Suppose a firm decides to raise pay as a way to reduce worker turnover.The resulting pay differential:

A)is a transitional differential
B)will reduce labor supply to the firm
C)will normally be offset by other pay differentials,leaving the policy ineffective
D)is an equilibrium differential

Question 40

The concept of noncompeting groups suggests that workers in different groups:

A)are legally prevented from competing with one another
B)are imperfect substitutes for one another
C)have comparable characteristics but work for firms in different industries
D)have identical stocks of human capital but differing preferences for nonwage job characteristics

Question 41

(World of Work 8-1)Edlund and Korn suggest that prostitutes are highly paid primarily because:

A)there is a wage differential to compensate for the risks of getting caught or acquiring a disease
B)there is a wage differential to compensate for doing without wage and earnings growth
C)most of their earnings goes to their "pimp" or "madam"
D)there is a wage differential to compensate for doing without the benefits of marriage

Question 42

(World of Work 8-2)Research by Krueger and Allen suggests that a substantial proportion of the increase in the college wage premium in the 1980s and 1990s can be explained by:

A)increased college enrollment by men
B)increased college enrollment by women
C)increased immigration rates
D)skill-biased technological change

Question 43

(World of Work 8-5)According to research by Kostiuk,"shift work":

A)is relatively rare because such workers do not earn a compensating wage differential
B)is more common than generally understood because such workers do not earn a compensating wage differential
C)provides a greater wage premium for highly educated workers than for less educated workers
D)provides a greater wage premium for less educated workers than for highly educated workers

Question 44

(World of Work 8-6)The hedonic method of valuing a human life:

A)is based on the "price" of accepting risk as revealed in compensating wage differentials
B)estimates the present value of the amount of wage and fringe benefits that would have been made had the worker not been killed
C)typically results in a value of between $500,000 and $700,000 per life lost
D)typically yields lower estimates than does the human capital approach