Question 1

If all employers pay an efficiency wage,then which of the following will increase the unemployment rate,other things the same?
A) It becomes less costly to monitor worker productivity.
B) Due to a mistake, firms reduce their wages.
C) The cost to the firm of workers shirking goes up.
D) Workers put a lower value on shirking.

Accepted Answer

The cost to the firm of workers shirking goes up.

Question 2

If workers for a firm have mainly general human capital,then when the demand for its output falls,the firm will mainly
A) lower wages.
B) cut back on employment.
C) cut work hours of all workers.
D) increase its specific investment in workers as the opportunity cost of training is low.

Accepted Answer

When the demand for a firm's output falls, the firm will generally need to produce less, which means that they will need fewer workers. Since the workers hired by the company have mostly general human capital, they will not have specific skills that are unique to the firm, and therefore, the firm will be less likely to invest in training them. This means that the firm will most likely cut back on its employment levels rather than investing in training its workers. Therefore, the best choice is B, which states that the firm will cut back on employment.

Question 3

Unemployment insurance in the United States is structured so that
A) replacement rates are constant.
B) almost all unemployed workers can collect UI benefits.
C) UI benefits are partially linked to previous pay.
D) UI benefits may be collected for one year after the job loss.

Accepted Answer

UI benefits in the United States are partially linked to previous pay through a formula that considers a worker's recent earnings. This means that workers who earned higher wages before becoming unemployed will receive higher UI benefits than those who earned lower wages.

Question 4

What is structural unemployment? How does structural unemployment arise on a geographic basis?

Accepted Answer

The answer of What is structural unemployment? How does structural...

Question 5

A researcher observes that more generous unemployment benefits result in a greater duration of unemployment and a great improvement in job matches.This suggests that more generous benefits
A) make job searchers more selective in the jobs they accept.
B) make job searchers increase the intensity of search by searching more openings per period.
C) both A and B
D) neither A nor B

Accepted Answer

When individuals receive more generous unemployment benefits, they have less of an immediate financial incentive to quickly accept any job they are offered. This can make job searchers more selective in the jobs they accept, choosing to hold out for higher-paying or more desirable positions. However, this selectivity can also result in better job matches, as individuals are able to find jobs that are a better fit for their skills and preferences.

Question 6

In the face of declining demand,unions usually tend to favor laying off workers rather than lowering wages.Which of these factors would not explain why this occurs?
A) Workers with less seniority are laid off first.
B) Union leaders are elected by majority vote.
C) Lay-offs usually only affect a small fraction of the work force.
D) Most union members are willing to lose their jobs rather than accept even a small cut in wages.

Accepted Answer

This factor cannot explain why unions tend to favor laying off workers rather than lowering wages. In fact, if most union members were willing to lose their jobs rather than accept a wage cut, it would make more sense for the union to try to negotiate for wage cuts in order to save jobs.

Question 7

How is unemployment defined in the United States? How is the number of unemployed counted in the United States? What is the unemployment rate?

Accepted Answer

The answer of How is unemployment defined in the United...

Question 8

Theoretically,existence of generous unemployment insurance will
A) reduce the unemployment rate.
B) reduce reservation wages.
C) improve job matches.
D) increase income inequality.

Accepted Answer

Generous unemployment insurance can allow individuals more time to search for jobs that better match their skills and preferences, potentially leading to improved job matches. This is because they are not forced to take the first available job due to financial pressures, allowing for a more thorough job search.

Question 9

What is the reservation wage? How does an individual's reservation wage affect the duration of a spell of unemployment? How does an individual's reservation wage affect the individual's expected wage?

Accepted Answer

The answer of What is the reservation wage? How does...

Question 10

What is the replacement rate of unemployment insurance in the United States? Does an increase in the replacement rate of unemployment insurance increase the duration of spells of unemployment? Using search theory,what would the rationale be for increasing the replacement rate or,for that matter,for even having unemployment insurance in the first place?

Accepted Answer

The answer of What is the replacement rate of unemployment...

Question 11

Unemployment tends to go up when aggregate demand falls mainly because
A) when wages fall, workers seek alternative employment.
B) unions renegotiate for lower wages, making it difficult for job searchers to find suitable jobs.
C) wage rates tend to be downward rigid.
D) most human capital is general and not firm-specific.

Accepted Answer

When aggregate demand falls, it creates a decrease in the demand for goods and services which then leads firms to decrease their production which will eventually lead to unemployment. However, if wages could easily fall, then firms might be able to reduce their wage bill, and continue to hire more workers at the lower wage rate, which would help to counterbalance the fall in demand. Nevertheless, most wage rates tend to be downward rigid, meaning that it's challenging to reduce wage rates without creating unhappiness and reduced productivity amongst workers. This leads to unemployment since firms are unable to decrease their wage bills by paying lower wages, making it difficult to counteract the fall in demand.

Question 12

If Ajax Incorporated is a very unstable employer that frequently lays off workers,it will prefer to locate its plants in states
A) with perfect experience rating of unemployment insurance tax rates.
B) with imperfect experience rating such that once its layoffs increase beyond a certain level, it does not have to pay a higher unemployment insurance tax rate.
C) with imperfect experience rating such that once its layoffs fall below a certain level, it pays the same minimum unemployment insurance tax rate.
D) with imperfect experience rating such that above a certain level, the unemployment tax rate increases more than in proportion to layoffs.

Accepted Answer

Since Ajax Incorporated is an unstable employer that frequently lays off workers, it would prefer to locate its plants in states with imperfect experience rating. Option B, where once layoffs increase beyond a certain level, the company does not have to pay a higher unemployment insurance tax rate, would be the best choice for Ajax Incorporated. This would allow the company to lay off workers without having to pay higher unemployment insurance tax rates.

Question 13

If all employers pay an efficiency wage and if workers in areas with low unemployment rates can easily find alternative jobs,then one would expect
A) average wages to be directly (positively) related to area unemployment rates.
B) average wages times one minus the unemployment rate to be the same across areas.
C) the duration of unemployment in an area, but not necessarily the rate, to be inversely related to the average wage of the area.
D) average wages will be higher in areas with low unemployment rates.

Accepted Answer

If all employers pay an efficiency wage and if workers in areas with low unemployment rates can easily find alternative jobs, then employers in those areas will have to offer higher wages to attract and retain workers. Therefore, average wages will be higher in areas with low unemployment rates.

Question 14

What are the sources of unemployment identified by the U.S.Department of Labor? Give some sense of the relative importance of each category in a non-recession year.

Accepted Answer

The answer of What are the sources of unemployment identified...

Question 15

If all employers pay an efficiency wage,then
A) more employees would shirk.
B) unemployment would be higher.
C) firms would be better able to monitor their employees productivity.
D) all of the above

Accepted Answer

Efficiency wages are wages that are higher than the market clearing wage in order to motivate workers to work harder and increase productivity. However, if all employers pay an efficiency wage, unemployment would be higher because the demand for labor would decrease at higher wage rates. This is because the demand for labor is based on the value of the marginal product of labor, and if wages are artificially inflated, firms may not be willing to hire as many workers as before. Shirking and monitoring productivity may be factors that firms consider when deciding to pay an efficiency wage, but they are not direct consequences of all employers paying an efficiency wage.

Question 16

Suppose that no one enters or leaves the labor force and that the fraction of the unemployed getting a job (in a given period)is 0.10 and the fraction of the employed becoming unemployed is 0.02.What is the approximate unemployment rate when the flows into and out of unemployment are in balance?
A) 9%
B) 10%
C) 17%
D) 22%

Accepted Answer

The answer of Suppose that no one enters or leaves...

Question 17

In reemployment bonus experiments,bonuses to workers who found new jobs quickly
A) increased the average duration of unemployment.
B) decreased the average duration of unemployment.
C) did not change the average duration of unemployment.
D) decreased the number of spells of unemployment.

Accepted Answer

Reemployment bonus experiments have shown that bonuses to workers who found new jobs quickly decreased the average duration of unemployment. This suggests that these bonuses provided an incentive for workers to search for and accept job offers more quickly, leading to reduced unemployment spells.

Question 18

The wage curve
A) shows that, with higher regional rates of unemployment, wages for otherwise comparable workers are higher.
B) is evidence that most national economies have regionally integrated labor markets.
C) may exist because efficiency-wage premiums can be smaller in areas of high unemployment.
D) is evidence that wages are always at equilibrium.

Accepted Answer

Efficiency-wage theories suggest that employers pay a premium above the market-clearing wage to increase productivity and reduce turnover. In areas of high unemployment, the threat of job loss can motivate workers even at lower wages, allowing employers to offer smaller efficiency-wage premiums. This explains why wages might be lower in regions with higher unemployment, aligning with the wage curve concept.

Question 19

Which of the following describes the wage curve?
A) Workers with higher wages are less likely to become unemployed.
B) Regions with higher wages have lower regional unemployment rates.
C) As more workers seek jobs, market wages fall.
D) As regional wages increase, the number of persons seeking jobs goes up.

Accepted Answer

The wage curve is a graph that plots regional wages against regional unemployment rates. It shows that regions with higher wages tend to have lower unemployment rates.

Question 20

A nation has full employment when
A) wages and prices are stable.
B) unemployment is at its lowest level.
C) unemployment rates are the same across all demographic groups.
D) workers are earning a living wage.

Accepted Answer

The answer of A nation has full employment when
A) wages...

Quiz 14: Unemployment

If all employers pay an efficiency wage,then which of the following will increase the unemployment rate,other things the same?

If workers for a firm have mainly general human capital,then when the demand for its output falls,the firm will mainly

Unemployment insurance in the United States is structured so that

What is structural unemployment? How does structural unemployment arise on a geographic basis?

A researcher observes that more generous unemployment benefits result in a greater duration of unemployment and a great improvement in job matches.This suggests that more generous benefits

In the face of declining demand,unions usually tend to favor laying off workers rather than lowering wages.Which of these factors would not explain why this occurs?

How is unemployment defined in the United States? How is the number of unemployed counted in the United States? What is the unemployment rate?

Theoretically,existence of generous unemployment insurance will

What is the reservation wage? How does an individual's reservation wage affect the duration of a spell of unemployment? How does an individual's reservation wage affect the individual's expected wage?

Unemployment tends to go up when aggregate demand falls mainly because

If Ajax Incorporated is a very unstable employer that frequently lays off workers,it will prefer to locate its plants in states

If all employers pay an efficiency wage and if workers in areas with low unemployment rates can easily find alternative jobs,then one would expect

What are the sources of unemployment identified by the U.S.Department of Labor? Give some sense of the relative importance of each category in a non-recession year.

If all employers pay an efficiency wage,then

Suppose that no one enters or leaves the labor force and that the fraction of the unemployed getting a job (in a given period) is 0.10 and the fraction of the employed becoming unemployed is 0.02.What is the approximate unemployment rate when the flows into and out of unemployment are in balance?

In reemployment bonus experiments,bonuses to workers who found new jobs quickly

The wage curve

Which of the following describes the wage curve?

A nation has full employment when