Deck 7: The Wage Structure

Question 1

In the United States, the poorest 10 percent of households earns approximately what share of total income?

A) 2%
B) 5%
C) 10%
D) 20%
E) 50%

Answer 1

A

Question 2

The data suggest that wages increase more with age for the highly educated compared to the less educated. This is evidence that

A) the return to education is low for all education levels.
B) the return to education is constant with respect to age.
C) on-the-job training is unrelated to the level of formal schooling.
D) less educated workers invest on-the-job training more so than do the highly educated.
E) highly educated people also invest more in postschooling human capital compared to the less educated.

Answer 2

E

Question 3

An actual Lorenz curve shows

A) the maximum and minimum wage gaps.
B) the relationship between income and tax revenue.
C) the share of income received by age group.
D) the relationship between income and earnings potential.
E) the cumulative share of income earned by quintiles of households.

Answer 3

E

Question 4

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 5

Which one of the following statements about the Gini coefficient is not true?

A) It reflects the data shown in the Lorenz curve.
B) It equals zero when there is perfect equality.
C) It increases as income inequality increases.
D) It must fall when the amount of income in an economy increases.
E) It equals one when there is perfect inequality.

Question 6

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, regardless of wages.
E) A firm will never hire Chris, regardless of wages.

Question 7

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 these are examples of general job training.

Question 8

Wage differentials across individual workers are determined in part by

A) effort.
B) productivity.
C) social capital.
D) luck.
E) All of these are determinants of wage differentials.

Question 9

The Gini coefficient in a perfectly unequal society will have a Gini coefficient of ________ while a perfectly equal society will have a Gini coefficient equal to ________.

A) 0 ; 1
B) 1 ; 0
C) 0 ; infinity
D) infinity; 0
E) −1; 1

Question 10

What is meant by the skill-bias technological explanation of increasing inequality?

A) There has been increasing inequality over the last 40 years because unskilled workers use no technology.
B) There has been increasing inequality over the last 40 years among high-skilled workers.
C) Inequality has increased because technological advances have not kept pace with the demand for education.
D) Inequality has increased because technological advances over the last 40 years have complemented the productivity of skilled labor relative to unskilled labor.
E) Inequality has increased because technological advances over the last 40 years have complemented the productivity of unskilled labor relative to foreign labor.

Question 11

What does the Gini coefficient measure?

A) the rate of growth of income inequality over time
B) the degree of inequality in an income distribution
C) the correlation coefficient between income and education
D) the covariance of income and education
E) the degree of tax incidence paid by poor workers

Question 12

How does the income distribution in the United States compare to other developed countries?

A) The income distribution is vastly more unequal in the United States compared to other developed countries.
B) The income distribution is vastly more equal in the United States compared to other developed countries.
C) The income distribution tends to be more unequal in the United States compared to other developed countries, but not by a huge amount.
D) The income distribution tends to be more equal in the United States compared to other developed countries, but not by a huge amount.
E) The income distribution must be the same in all developed countries, the United States included, because of increased globalization.

Question 13

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

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

Question 14

Higher values of the Gini coefficient are associated with

A) greater education inequality.
B) greater income inequality.
C) less income inequality.
D) greater labor mobility.
E) less labor mobility.

Question 15

What is the main selection issue researchers must address when trying to estimate the effectiveness of government training programs?

A) The true cost of government training programs is unknown because unemployed workers also receive welfare benefits.
B) The most motivated unemployed workers are the ones who are also most likely to take advantage of government training programs.
C) Government training programs are usually geared toward developing general skills rather than providing specific job training.
D) Most government training programs are only offered to the unemployed and not to workers who would like to switch jobs.
E) Evaluation schemes tend to lose track of participants once they start a new job after the training.

Question 16

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 do not need to work hard when employed.
E) Unemployment benefits are tied to specific training.

Question 17

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

Question 18

In the United States, the wealthiest 10 percent of households earns approximately what share of total income?

A) 5%
B) 10%
C) 30%
D) 50%
E) 80%

Question 19

Suppose the distribution of innate ability is distributed symmetrically throughout a population but that the wage distribution is positively skewed. What most likely explains this?

A) a regressive tax code.
B) decreased immigration.
C) differences in human capital accumulation.
D) a decreasing Gini coefficient.
E) a noncompetitive labor market

Question 20

What does it mean for the U.S. economy to have a positively skewed wage distribution?

A) Most workers earn below the average wage.
B) A large proportion of workers earn very high wages.
C) The average wage equals the median wage.
D) The distribution of wages is symmetric around the mean.
E) The mean wage equals the median wage.

Question 21

Which of the following statements regarding the relative 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 college degree has increased dramatically since 1960.
C) The percent of workers with an advanced degree has increased dramatically since 1960.
D) The supply of highly skilled women to the workforce has increased dramatically since 1960.
E) All of the above statements are true.

Question 22

Which of the following is not a possible explanation as to why wage inequality increased markedly over the last 40 years in the United States?

A) There was an increase in the supply of low-skill workers, particularly through immigration.
B) Federal legislation allowed employers to legally engage in more racial discrimination.
C) Competition from international economies has increased demand for highly productive workers.
D) Recent technological changes have been complementary to skilled labor while substituting for unskilled labor.
E) Institutional changes in the United States such as a steady decline in union coverage and a falling real minimum wage have led to changes in the wage distribution.

Question 23

What is the approximate Gini coefficient associated with the following income distribution? $$\begin{array} { c c c } \text { Household } & \text { Share of } & \text { Currulative Share } \\\text { Percentile } & \text { Income } & \text { of income } \\20 ^ { \text {th } } & 0.05 & 0.05 \\40 ^ { \text {th } } & 0.10 & 0.15 \\60 ^ { \text {th } } & 0.20 & 0.35 \\80 ^ { \text {th } } & 0.25 & 0.60 \\100 ^ { \text {th } } & 0.40 & 1.00\end{array}$$

A) 0.08
B) 0.13
C) 0.23
D) 0.34
E) 0.48

Question 24

Consider an economy with a particular distribution of income. Over the next 10 years, the income of all households increases by $20,000. How will the Gini coefficient change over those 10 years?

A) The Gini coefficient will increase.
B) The Gini coefficient will decrease.
C) The Gini coefficient will stay the same as all households received the same increase in income.
D) The Gini coefficient will become more negative.
E) It is impossible to determine how the Gini coefficient will change as it will depend on the original income distribution.

Question 25

How have average wages of college graduates compared to average wages of high school graduates over the last 30 years?

A) Relative college wages have held steady over the last 30 years, with college graduates earning about 60% more than high school graduates during the entire period.
B) Relative college wages have held steady over the last 30 years, with college graduates earning about 90% more than high school graduates during the entire period.
C) Relative college wages have increased drastically over the last 30 years, from being 50% more than high school wages in 1980 to almost 100% more in 2005.
D) Relative college wages have increased drastically over the last 30 years, from being 20% more than high school wages in 1980 to almost 60% more in 2005.
E) Relative college wages have decreased slightly over the last 30 years, from being 40% more than high school wages in 1980 to just under 30% more in 2005.

Question 26

Expansions in globalization and the reduction of worldwide trade barriers during the 1980s and 1990s most likely had what effect on the demand for U.S. labor?

A) The demand for unskilled workers increased, while the demand for skilled workers decreased.
B) The demand for unskilled workers decreased, while the demand for skilled workers increased.
C) The demand for unskilled and skilled workers increased.
D) The demand for unskilled and skilled workers decreased.
E) The demand for unskilled workers increased, while the demand for skilled workers did not change.

Question 27

In the United States over the last 30 years, wage differentials have

A) narrowed for all groups of workers.
B) increased for all groups of workers.
C) increased for skilled workers but have narrowed for unskilled workers.
D) decreased for skilled workers but have increased for unskilled workers.
E) increased for women but have narrowed for men.

Question 28

Large disparities in wages could possibly result from all but which one of the following?

A) parental investment in a child's human capital
B) increases in the amount of middle-class jobs
C) skill-biased technological change
D) globalization
E) an increase in the demand for highly skilled labor

Question 29

In general terms, which of the following statements regarding changes in income inequality in the United States is correct?

A) Inequality has increased substantially over the last 40 years as witnessed by the Gini coefficient increasing from about 0.1 in 1970 to over 0.7 in 2010.
B) Inequality has increased slightly over the last 40 years as witnessed by the Gini coefficient increasing from below 0.4 in 1970 to over 0.45 in 2010.
C) Inequality has decreased substantially over the last 40 years as witnessed by the Gini coefficient decreasing from about 0.5 in 1970 to almost 0.05 in 2010.
D) Inequality has decreased substantially over the last 40 years as witnessed by the Gini coefficient decreasing from about 0.8 in 1970 to just over 0.25 in 2010.
E) Inequality has stayed about the same over the last 40 years as witnessed by a Gini coefficient that has hovered around 0.6.

Question 30

In the context of intergenerational inequality, regression toward the mean is captured by which of the following?

A) the tendency for inequality to be wider as a country experiences economic growth
B) the tendency for countries to diverge in their inequality
C) the tendency for income differences across families to get smaller over time as the various families move toward the mean income of the population
D) the tendency for the 90-50 wage gap to approach the 50-10 wage gap as a country experiences economic growth
E) the tendency for the tax code to erode inequality by targeting the mean tax rate to mean income