Deck 13: The Hiring Process

Question 1

Suppose a competitive labor market is populated by 75% high-ability (H)workers and 25% low-ability (L)workers.Each high-ability worker produces output valued at $100 and each low-ability worker produces output valued at $20.Without job market signaling,the equilibrium wage will be:

A) $20.
B) $40.
C) $50.
D) $60.
E) $100.

Answer 1

D

Question 2

Which of the following is suggested by the risky worker hypothesis?

A) Risky workers have worse option values than safe workers.
B) Firms minimize downside risk by terminating employment contracts.
C) The worst outcome for a firm is earning small positive profits.
D) The firm breaks even if the safe worker is a diamond in the rough.
E) Workers have higher expected value in this model than in the efficiency wage model.

Answer 2

B

Question 3

Suppose a competitive labor market is populated by equal numbers of high-ability (H)and low-ability (L)workers.Each high-ability worker produces output valued at $100 and each low-ability worker produces output valued at $20.Without job market signaling,the equilibrium wage will be:

A) $20.
B) $40.
C) $50.
D) $60.
E) $100.

Answer 3

D

Question 4

In screening models ______ act first,while in signaling ______ models act first.

A) firms;workers
B) firms;the government
C) workers;the government
D) workers;firms
E) workers;workers

Question 5

Which of the following is NOT an example of job-market signaling?

A) educational investments
B) reference letters
C) career building
D) extra-curricular activities
E) volunteer work

Question 6

Suppose a competitive labor market is populated by equal numbers of high-ability (H)and low-ability (L)workers.Each high-ability worker produces output valued at $100 and each low-ability worker produces output valued at $20.In terms of time for their effort,it costs $60 for high-ability students to acquire a college degree while it costs low-ability students $75 to acquire a college degree.High-ability students ______ acquire a college degree and will be paid ______.

A) will not;$60
B) will not;$100
C) will;$60
D) will;$100
E) will;$10

Question 7

Assume that there are two types of workers: safe and risky.At the beginning of the first period a firm must decide to hire a safe or risky worker.Safe workers have constant ability worth $200 per period.There is a 50 percent chance a risky worker will have ability worth $300 per period and a 50 percent chance a risky worker will have ability worth $100 per period.What is the risky worker's average productivity?

A) $100
B) $200
C) $300
D) $400
E) $500

Question 8

Michael Spence posits that high-ability workers are able to choose just the right amount of education to signal that they are high-ability because:

A) high-ability workers find it less costly to acquire education than low-ability workers.
B) high-ability workers have greater productivity gains from education than low-ability workers.
C) employers value education in and of itself.
D) high-ability workers enjoy school more than low-ability workers.
E) low-ability workers value leisure more than high-ability workers.

Question 9

Which of the following is an example of asymmetric information in which workers know their own abilities but firms do not?

A) a seasoned athlete
B) an established actor
C) a recent college graduate
D) an assistant professor
E) a high school student

Question 10

If worker ability differs along a single dimension,their earnings are usually:

A) unrelated to ability.
B) homogeneous.
C) heterogeneous.
D) proportional to their ability-unadjusted productivities.
E) proportional to their ability-adjusted productivities.

Question 11

In a screening model,______ carefully design(s)______ to exploit the strengths of some groups and the weaknesses of others.

A) employers;job packages
B) the government;labor market legislation
C) workers;job packages
D) workers;educational attainment
E) the government;job packages

Question 12

Under the Roy model,workers' heterogeneous abilities are:

A) known by both workers and firms.
B) known only by workers.
C) known only by firms.
D) unknown by both workers and firms.
E) sometimes known by workers and always known by firms.

Question 13

Which of the following is an example of a situation in which each worker's ability is public information and is observed by workers and firms?

A) a seasoned athlete
B) a young soccer player
C) a recent college graduate
D) an assistant professor
E) a high school student

Question 14

Which of the following is NOT a true statement about the screening model?

A) Screening is conducted by employers.
B) Screening induces workers to reveal private information.
C) Screening is used to judge workers' abilities.
D) Screening takes place before workers enter the labor market.
E) Screening exploits the strengths of some groups and the weaknesses of others.

Question 15

Suppose a competitive labor market is populated by equal numbers of high-ability (H)and low-ability (L)workers.Each-high ability worker produces output valued at $100 and each low-ability worker produces output valued at $20.In terms of time for their effort,it costs $50 for high-ability students to acquire a college degree while it costs low-ability students $85 to acquire a college degree.Firms will offer workers with college degrees ______ and workers without college degrees ______.

A) $20;$100
B) $150;$85
C) $60;$60
D) $100;$20
E) $50;$20

Question 16

Which of the following is an example of symmetric information in which both workers and firms are uninformed about workers' true abilities?

A) a seasoned athlete
B) a young soccer player
C) a recent college graduate
D) an assistant professor
E) a high school student

Question 17

Under the Roy model,each worker self-selects into a job on the basis of ______ and ______.

A) comparative advantage;the prevailing prices in the market
B) single-dimension ability;the prevailing prices in the market
C) his bundle of skills;ability-unadjusted productivity
D) comparative advantage;ability-unadjusted productivity
E) single-dimension ability;his comparative advantage

Question 18

In a situation where workers have more information about their own talents than do employers,workers cannot simply announce their relative abilities because:

A) both high- and low-ability workers have an incentive to announce they are high ability.
B) firms are incapable of screening workers.
C) workers cannot signal.
D) signaling is costly.
E) announcing these abilities is costly.

Question 19

Which of the following is suggested by the person-specific information theory?

A) Workers' earnings should be unrelated to experience.
B) Safe workers have constant productivity.
C) Workers' abilities are increasing in output.
D) Workers' productivities are constant over time.
E) Over time,workers will be assigned to more productive tasks within the firm.

Question 20

Which of the following is NOT an example of a screening mechanism?

A) reference letters
B) résumés
C) candidate testing
D) educational investments
E) interviews

Question 21

Assume that there are two types of workers: safe and risky.At the beginning of the first period a firm must decide to hire a safe or risky worker.Safe workers have constant ability worth $200 per period.There is a 50 percent chance a risky worker will have ability worth $300 per period and a 50 percent chance a risky worker will have ability worth $100 per period.Safe workers can be hired for a per-period wage of $190 and risky workers can be hired for a per-period wage of $210.What are the firm's profits if it hires a safe worker?

A) $5
B) $10
C) $20
D) $30
E) $50

Question 22

Assume that there are two types of workers: safe and risky.At the beginning of the first period a firm must decide to hire a safe or risky worker.Safe workers have constant ability worth $200 per period.There is a 50 percent chance a risky worker will have ability worth $300 per period and a 50 percent chance a risky worker will have ability worth $100 per period.What is the risky worker's average productivity?

A) $100
B) $200
C) $300
D) $400
E) $500

Question 23

Assume that there are two types of workers: safe and risky.At the beginning of the first period a firm must decide to hire a safe or risky worker.Safe workers have constant ability worth $200 per period.There is a 50 percent chance a risky worker will have ability worth $300 per period and a 50 percent chance a risky worker will have ability worth $100 per period.Safe workers can be hired for a per-period wage of $190 and risky workers can be hired for a per-period wage of $210.What are the firm's profits if it hires a safe worker?

A) $5
B) $10
C) $20
D) $30
E) $50