Question 1

Business firms that pay salespeople a percentage of the sales they make are attempting to reward:

Accepted Answer

Salespeople are being rewarded for their work effort in generating sales. The more sales they make, the more they earn. This is a performance-based pay system that ties compensation directly to results. Factors such as years of experience or education level may be considered in setting a base salary or determining a starting pay rate, but the percentage of sales earned is based on the actual work effort and results produced by the salesperson. Comparable worth is generally used to ensure that employees of different genders or races are paid the same wage for work of equal value.

Question 2

Suppose a forestry firm increases its investment in new technology for its sawmills.The firm employs both skilled and unskilled workers.After this new investment the wage gap between skilled and unskilled workers:

Accepted Answer

The investment in new technology for sawmills would increase the productivity and efficiency of the skilled workers, as they are likely to operate and maintain the new machines. This would increase their marginal productivity and hence, their wages are likely to rise. On the other hand, the unskilled workers may not have skills to operate or adapt to the new technology, reducing their marginal productivity. Therefore, the wage gap between the skilled and unskilled workers is likely to widen, indicating a rise in the wage gap.

Question 3

Up until the late 1980's, the ratio of earnings of university graduates to the earnings of those who left after secondary school declined.However, during this period equilibrium quantity of employed university graduates also increased.What could explain this outcome?

Accepted Answer

The increase in the equilibrium quantity of employed university graduates, despite the decline in their earnings relative to those with only secondary education, suggests that both the supply and demand for university graduates rose. A rise in supply could lead to lower relative earnings, but an increase in demand would be necessary to also increase the quantity employed.

Question 4

Suppose the minimum time taken to get a university degree is increased from three years to six years.Under the signalling view of education this is likely to lead to:
(i) all employers being able to better distinguish high-ability job applicants from low-ability applicants
(ii) top-tier employers (eg.investment banks, law firms) being able to better distinguish high-ability job applicants from low-ability applicants
(iii) an increase in human capital and a corresponding increasing in the marginal product of labour

Accepted Answer

The signalling view of education suggests that the educational degree serves as a signal to employers about an individual's ability and potential productivity. Increasing the minimum time to get a university degree would likely result in top-tier employers being able to better distinguish high-ability job applicants from low-ability applicants. This is because those who are committed to investing six years in getting a degree may signal to potential employers that they are more dedicated and have a stronger work ethic than those who only invest three years. However, this change is unlikely to impact all employers, so option (i) is incorrect. While an increase in human capital may result from more education, there is no evidence to suggest that this would occur as a direct result of increasing the minimum time to get a university degree, so option (iii) is also incorrect.

Question 5

Empirical analysis of wage differences have found evidence:

Accepted Answer

Empirical analysis has found evidence of a direct correlation between wages and attractiveness, indicating that more attractive individuals may receive higher wages than less attractive individuals.

Question 6

Under the 'signalling view' of education, obtaining a university degree communicates valuable information to employers because:

Accepted Answer

The signalling view suggests that obtaining a degree is easier for high-ability individuals, thus they are more likely to pursue and complete higher education, signaling their ability to employers.

Question 7

Economists have proposed which of the following as contributing to the rising wage gap between skilled and unskilled workers?

Accepted Answer

Technological improvements in capital stocks have led to increased demand for skilled workers who are able to operate and maintain advanced machinery and technology. This has resulted in a higher wage premium for those with advanced technical skills, while the wages of unskilled workers have stagnated or decreased.

Question 8

Studies that try to measure the factors that explain wage differences have shown that:

Accepted Answer

Most studies have found that measurable factors such as education, experience, and occupation can explain only a portion (less than half) of the variation in wages. This suggests that other factors, such as discrimination, social networks, and luck, also play a role in determining wages.

Question 9

Professional cricket players have very large differences in the salaries that is best explained by:

Accepted Answer

The answer of Professional cricket players have very large differences...

Question 10

The alternative to human capital theory that explains why people invest in education argues that:

Accepted Answer

The alternative theory argues that schooling is not directly tied with productivity, but rather acts as a signal of a person's ability which in turn leads to higher wages.

Question 11

The 'beauty premium' can be explained by the fact that:

Accepted Answer

The 'beauty premium' refers to the idea that in certain professions, physical attractiveness can enhance the value of a worker's marginal product. This is supported by studies that have shown that attractive people earn higher salaries compared to their less attractive colleagues.

Question 12

Suppose a forestry firm has just two types of jobs.One requires an education and the other does not.The differences in the wages is high enough to provide workers with a reasonable return on their investment in education.It is likely that:

Accepted Answer

Given the high wage difference that compensates for the investment in education, more individuals are likely to pursue the necessary education to qualify for the higher-paying job, thus increasing the supply of workers for that position.

Question 13

Economists who study labour markets have discovered that:

Accepted Answer

Economists who study labour markets have found that ability, effort, and chance are likely to be significant contributors to wage differences, with ability being more difficult to measure than effort. Only a small percentage of wage differences are related to chance alone.

Question 14

Even when university education in Australia was free, not everyone got a degree.Which of the following is one possible reason for why some people would get degrees while others would not?

Accepted Answer

Even if university education is free, obtaining a degree requires time and effort, which may be more costly for low-skilled individuals than high-skilled individuals. Therefore, some people may choose not to pursue a degree even when it is free.

Question 15

The statement 'the rich get richer, and the poor get poorer' is evident in the fact that:

Accepted Answer

The statement 'the rich get richer, and the poor get poorer' is most evident in the increasing earnings gap between high-skill and low-skill jobs over the last several years. While the other options (A and B) may also contribute to income inequality, they are not necessarily direct evidence of the statement.

Question 16

When computers are used to replace workers on a factory production line, the wage gap:

Accepted Answer

When computers are used to replace workers on a factory production line, it is likely that the wage gap between skilled workers and unskilled workers will increase. This is because the use of computers and automation tends to require a higher level of technical skill and expertise, and thus rewards workers who possess these skills with higher wages. At the same time, less-skilled workers may find it more difficult to compete for these higher-paying jobs, as their skills become less in demand.

Question 17

Hypotheses described in the text, and that have been proposed to explain the rising wage gap between skilled and unskilled workers:

Accepted Answer

The hypotheses described in the text may be complementary to one another, meaning they can work together to explain the observed wage gap between skilled and unskilled workers. There may be multiple factors contributing to the wage gap, rather than one single explanation.

Question 18

An economy has two jobs, one that requires education and one that does not.If the wage difference between the two jobs is not sufficient for individual workers to make a return on their investment in education, it is likely that:

Accepted Answer

When the wage difference is not sufficient to cover the costs and provide a return on investment in education, fewer individuals will be motivated to pursue the necessary education, leading to a decrease in the supply of educated workers. This, in turn, can cause wages for jobs requiring education to rise due to the reduced supply of qualified workers. Overall, workers will have little incentive to pursue education under these conditions, making all the provided options correct.

Question 19

Arts majors are typically told that an arts degree 'does not restrict one's ability to find successful employment in business'.This statement is likely to reflect a philosophy that an arts degree is:

Accepted Answer

An arts degree is often seen as a signal of high ability because it demonstrates skills such as critical thinking, creativity, and communication, which are valued in business environments.

Question 20

Suppose John was very skilled at developing film into photos.John however, lacks the skills to process digital photos because he knows little about computers.Most amateur photographers now use digital cameras.This means it is very likely that John's wage will fall because of:

Accepted Answer

John's lack of skills in processing digital photos may become obsolete as more and more photographers switch to using digital cameras. This means there will be less demand for his specialized skill of developing film, and therefore his wage may fall. It is not related to his natural ability, work effort, or geographic location.

Quiz 20: Earnings, Unions and Discrimination