Question 1

The Mincer human capital model uses years of schooling because&#10;A) This is an accurate measure of an individual&#10;B) Returns to schooling are linear&#10;C) Returns are no higher in the years in which qualifications are obtained&#10;D) At the time Mincer undertook his studies US education statistics were compiled in this form.

Accepted Answer

The Mincer human capital model uses years of schooling as a proxy for an individual's human capital primarily because, at the time Mincer was conducting his studies, U.S. education statistics were compiled in terms of years of schooling. This made it a readily available and consistent measure to use for analyzing the relationship between education and earnings across the population.

Question 2

The earnings function is endogenous because&#10;A) Higher earnings may cause individuals to consume more education&#10;B) Ability is correlated with the consumption of education&#10;C) Those from richer families are not credit constrained in choosing how much education to consume&#10;D) Of all of these reasons.

Accepted Answer

All of the given reasons contribute to the endogeneity of the earnings function. Higher earnings may cause individuals to consume more education, which means that the level of education is not determined solely by individual ability or preferences. Moreover, the consumption of education may be influenced by factors such as family income and wealth, which can affect access to credit and financial resources. This can lead to a situation where the level of education is a function of earnings, and earnings are also a function of education, creating an endogenous relationship between the two.

Question 3

The sheepskin model&#10;A) Suggests that returns are significantly higher in years in which qualifications are obtained&#10;B) Is consistent with linear returns to education&#10;C) Is inconsistent with credentialism&#10;D) Suggests that the Mincer model underestimates the return to education.

Accepted Answer

A , C

Question 4

The positive relationship between earnings and job tenure results from&#10;A) The fact that productivity is higher the longer an individual remains with the firm&#10;B) Is simply a proxy for experience&#10;C) Only reflects the fact that less productive workers leave&#10;D) Only reflects the fact that more productive workers leave.

Accepted Answer

The positive relationship between earnings and job tenure results from the fact that productivity is higher the longer an individual remains with the firm. This is because, with experience, workers become more efficient and effective at their job, leading to higher levels of productivity and, consequently, higher earnings.

Question 5

Employers make use of screening devices because&#10;A) There is no relationship between education and productivity&#10;B) This is the cheapest method of selecting the best candidates&#10;C) Employing more educated workers will require a lower investment in training&#10;D) None of these reasons.

Accepted Answer

The answer of Employers make use of screening devices because&#10;A)...

Question 6

The costs of general and specific training may be shared because&#10;A) General and specific training are complements&#10;B) There are transactions costs&#10;C) There are information asymmetries&#10;D) Of all of these reasons.

Accepted Answer

All of these reasons can contribute to the sharing of costs between general and specific training. General and specific training often complement each other, so it makes sense for both types of training to be provided. Transactions costs and information asymmetries can also make it more efficient for employers to provide both types of training rather than relying solely on one or the other. Therefore, all of these reasons can contribute to the sharing of costs between general and specific training.

Question 7

The incentive to train is a function of&#10;A) The degree of monopsony power in the labour market&#10;B) The degree of wage compression&#10;C) The extent of unionisation&#10;D) The extent of local unemployment.

Accepted Answer

The answer of The incentive to train is a function...

Question 8

Governments may intervene in the provision of training&#10;A) Because governments are more efficient in the providing such training&#10;B) Because employers cannot afford to train workers&#10;C) Because there are skill shortages&#10;D) Because there may be an under-provision of training otherwise.

Accepted Answer

Governments may intervene in the provision of training because there may be an under-provision of training otherwise. This can lead to a skills gap in the workforce, which can ultimately harm the economy. By providing training programs, the government can ensure that workers have the skills necessary to succeed in the job market, and that employers have access to a skilled labor pool.

Deck 3: Investment in Human Capital