Deck 6: Human Capital

Question 1

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.Schooling costs a highly skilled worker y per year, while it costs a less-skilled worker 2y per year.What range of y will support a signaling equilibrium?

A)$0 < y < $50,000
B)$5,000 < y < $10,000
C)$5,000 < y < $20,000
D)$10,000 < y < $20,000
E)$20,000 < y < $50,000

Answer 1

D

Question 2

What is an example of specific job training?

A)Learning word-processing skills.
B)Learning how to use the firm's payroll system.
C)Obtaining a GED.
D)Becoming stronger.
E)Passing the CPA exam.

Answer 2

B

Question 3

The wage-schooling locus is

A)downward sloping because education is generally productive.
B)upward sloping because education is generally productive.
C)backward bending.
D)horizontal because wages are unrelated to schooling.
E)vertical because education is a public good.

Answer 3

B

Question 4

Paula is considering going to law school.If she does, she will spend $60,000 on tuition and books to get a college education (during the first time period), $120,000 on tuition and books to get a law degree (during the second time period), and her law degree will earn her $620,000 during the remainder of her work-life (during the third time period).Paula's time preference for money is associated with a per-period interest rate of 20 percent.Approximately what is Paula's present value of obtaining a law degree?

A)$100,100
B)$210,400
C)$270,500
D)$440,000
E)$621,900

Question 5

In order to use schooling as a signal:

A)The signal must be more costly for low-skilled workers than for high-skilled workers.
B)The cost of purchasing the signal must not be so costly that high-skilled workers don't value obtaining it.
C)Firms must be able to easily verify each worker's amount of schooling.
D)Some people must choose to not complete schooling.
E)All of the above are required for schooling to serve as a signal.

Question 6

What is an example of general job training?

A)Learning how to use a forklift.
B)Learning how to weld.
C)Reading a book on techniques for managing large groups of workers involved on team projects.
D)Attending an industry convention on "best practices."
E)All of the above.

Question 7

Why might people choose to go to college?

A)Because a college education signals to firms that the worker is highly motivated.
B)Because a college education increases one's productivity, which will be rewarded in the labor market with higher wages.
C)Because someone enjoys the process of becoming educated.
D)Because one cannot find employment.
E)All of the above.

Question 8

What is implied when the wage-schooling profile is drawn as a concave (i.e., increasing at a decreasing rate) function?

A)The marginal return to schooling increases as years of schooling increases.
B)The marginal return to schooling is positive but falling as years of schooling increases.
C)Average wages fall as years of schooling increases.
D)The cost of schooling increases, but at a decreasing rate.
E)The cost of schooling decreases, but at an increasing rate.

Question 9

Which statement about human capital is false?

A)Human capital gives firms a way to differentiate between workers.
B)Workers accumulate human capital during formal education and through life experiences.
C)There is more human capital in the U.S.now than there was 100 years ago.
D)Human capital has a low rate of return.
E)Human capital tends to be an important determinant of one's wages.

Question 10

The slope of the wage-schooling locus provides an estimate of

A)the average years of education as a function of age.
B)the average wage or salary of workers for a given level of schooling.
C)the economic return to an additional year of schooling.
D)the economic cost of an additional year of schooling.
E)the marginal cost of an additional year of schooling.

Question 11

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.

Question 12

Selection bias is a problem when trying to estimate the return to education in a standard human capital model.In this context, what does selection bias refer to?

A)Having a non-random data sample.
B)Workers self-select education levels and jobs based on their abilities and preferences.
C)Colleges select who they are willing to accept.
D)The wage-schooling locus does not have a constant slope.
E)The wage-schooling locus is estimated to have a negative slope.

Question 13

Why do workers typically pursue their education while young?

A)Because there is more time to benefit from the higher wages that are typically associated with more education.
B)Because all of their friends pursue education while young.
C)Because living expenses are low for a younger person.
D)Because parents force their children to attend college immediately after high school.
E)Because they are more likely to receive a scholarship.

Question 14

People decide how much schooling to receive based on:

A)Their discount rate.
B)The marginal rate of return to schooling.
C)The present value of expected future earnings.
D)Their ability to succeed in education programs.
E)All of the above factors influence how much schooling one receives.

Question 15

Human capital refers to

A)the amount of financial capital owned by firm owners.
B)the amount of financial capital owned by workers.
C)the amount of physical capital a firm owns (per worker it employs).
D)the unique set of abilities and skills embedded in workers.
E)the amount of physical capital produced by labor.

Question 16

Which of the following reasons is not a likely explanation as to why college completion rates are greater, on average, for whites than for blacks?

A)Tuition costs are lower for whites than blacks.
B)Whites have access to more financial capital to pay for college than blacks.
C)Post-college wages are higher for whites than for blacks.
D)Whites have greater access to higher quality public education at the elementary and secondary level.
E)Whites are more able to postpone earnings at age 18 than are blacks.

Question 17

Why is it that a firm will typically not pay for general training?

A)General training is free.
B)General training is too expensive.
C)The benefits of general training depreciate quickly.
D)General training usually doesn't increase worker productivity.
E)The skills gained from the general training are transferable to other firms.

Question 18

What is the stopping rule for choosing one's years of schooling?

A)End one's schooling when the return from more schooling is zero.
B)End one's schooling when the cost of one more year of schooling is zero.
C)End one's schooling after college.
D)End one's schooling when the rate of return to one more year of schooling equals the worker's rate of discount.
E)End one's schooling when the worker's rate of discount equals zero.

Question 19

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

Question 20

What does not enter into the present value calculation of a college degree?

A)The cost of college tuition.
B)The cost of books.
C)Wages of college graduates.
D)Lifetime wages of non-college graduates.
E)The value of one's scholarships.

Question 21

Time out of the labor force reduces current earnings as well as future earnings.This suggests that

A)general training does not exist.
B)on-the-job experience is a form of human capital.
C)firms will not invest in specific job training.
D)workers never willingly exit the labor force when young.
E)productivity is unrelated to job experience.

Question 22

If ability is positively related to schooling, then estimating the returns to education directly from the wage-schooling profile will likely

A)under-estimate the return to schooling.
B)over-estimate the return to schooling.
C)under-estimate the average wage.
D)over-estimate the average wage.
E)under-estimate the average discount rate.

Question 23

Suppose Amy has 100 efficiency units of labor; Bill has 50 efficiency units of labor; and Chris has 20 efficiency units of labor.Which of the following is true?

A)A firm will always hire Amy over Chris, regardless of wages.
B)A firm will hire Amy if her wage is at least twice that of Bill's and at least five times that of Chris's.
C)A firm will hire Amy if her wage is at most double that of Bill's and at most five times that of Chris's.
D)A firm will never hire Bill.
E)A firm will never hire Chris.

Question 24

Approximately what percent of people in the United States typically do not graduate from high school?

A)2%
B)5%
C)10%
D)15%
E)20%

Question 25

Which group of workers tends to have the highest unemployment rate among high school dropouts?

A)Men
B)Women
C)Blacks
D)Hispanics
E)Whites

Question 26

Suppose all 18-year-olds are identical in every way except that some have easy access to credit (i.e., they face a low interest rate when borrowing money) while others have a difficult time accessing credit (i.e., they face a high interest rate when borrowing money).Which of the following statements is not true?

A)Those who have easy access to credit have a lower rate of discount than those who do not have easy access to credit.
B)Those who have easy access to credit will be more likely to go to college than those who do not have easy access to credit.
C)The present value calculation of college will be higher for those who have easy access to credit than for those who do not have easy access to credit.
D)Some people who have easy access to credit will not go to college.
E)No one without easy access to credit will go to college.

Question 27

Approximately what percent of people in the United States typically receive more education than just a high school degree?

A)15%
B)25%
C)50%
D)65%
E)90%

Question 28

The Mincer earnings function is used to estimate

A)ability bias.
B)the signaling effect.
C)the social return to schooling.
D)the value of the marginal product of labor.
E)the age earnings profile.

Question 29

Temporary layoffs are common in the United States especially among workers who are heavily invested with specific training.Why?

A)Specific training deteriorates quickly, so a laid-off worker with specific training is not valuable to any firm.
B)The laid-off worker with specific training is more valuable to the firm that laid her off than she is to any other firm.Thus, it is in the worker's best interest to remain unemployed until recalled to work at her original firm.
C)Workers without specific training are never hired in the first place.
D)Workers with specific training know they don't need to work hard when employed.
E)Unemployment benefits are tied to specific training.

Question 30

The social rate of return to schooling

A)includes all private benefits to schooling.
B)includes the signaling benefits to schooling.
C)includes the increase in national income resulting from education.
D)does not take into account the costs of education.
E)are always well defined.