Question 1

By paying efficiency wages, firms contribute to higher unemployment because they:

Accepted Answer

By keeping the wage above the equilibrium level, firms may create a surplus of willing workers while simultaneously decreasing the number of job opportunities available. This ultimately leads to higher unemployment rates.

Question 2

In the case of unions, the conflict of interest between different groups of workers results in insiders wanting ______, while outsiders want ______.

Accepted Answer

Insiders (current union members) typically prioritize high wages for themselves, while outsiders (non-union workers or those seeking employment) often desire more hiring opportunities to gain employment or improve their job positions.

Question 3

Most spells of unemployment are ______ term, and most weeks of unemployment are attributable to ______-term unemployment.

Accepted Answer

Most spells of unemployment are short term, meaning that any individual period of unemployment typically does not last very long. However, most weeks of unemployment when aggregated across the population are attributable to a smaller number of individuals who are unemployed for a long time. This is because the long-term unemployed, although fewer in number, remain unemployed for much longer periods, thus contributing to a larger total number of unemployment weeks.

Question 4

Permitting a lower minimum wage for teenagers would likely:

Accepted Answer

Allowing a lower minimum wage for teenagers could make them more attractive to employers compared to unskilled adults, potentially increasing adult unemployment as employers might prefer the cheaper labor provided by teenagers.

Question 5

Efficiency-wage theories suggest that a firm may pay workers more than the market-clearing wage for all of the following reasons except to:

Accepted Answer

Efficiency-wage theories suggest that firms may pay workers more than the market-clearing wage to achieve better outcomes such as reducing labor turnover, improving the quality of workers, increasing worker effort, and enhancing workers' motivation. However, paying higher wages would not reduce the firm's wage bill. Therefore, option D is the correct answer.

Question 6

Paying efficiency wages helps firms reduce the problem of adverse selection by:

Accepted Answer

Paying efficiency wages incentivizes higher quality workers to stay with the firm because they are being compensated above the market wage. This reduces adverse selection because only the best-qualified workers are willing to accept the higher wage, rather than a mix of high and low quality workers. This leads to a more productive and efficient workforce.

Question 7

During the period from 1990 to 2006, in the United States, most spells of unemployment lasted:

Accepted Answer

Most spells of unemployment were short, but the longer spells accounted for the majority of total unemployment time.

Question 8

The percentage of workers who belong to unions in the United States is approximately:

Accepted Answer

According to the Bureau of Labor Statistics, as of 2021, the percentage of workers who belong to unions in the United States is approximately 10.8 percent. This is closest to option A, 13 percent.

Question 9

One efficiency-wage theory implies that firms pay high wages because:

Accepted Answer

The efficiency-wage theory suggests that paying higher wages than the market equilibrium will decrease employee turnover, reduce shirking behavior, and increase worker effort and productivity. High wages provide an incentive for workers to stay with the firm, leading to lower costs associated with recruitment and training of new employees. Therefore, option C is the best choice as it aligns with this theory. Options A, B, and D are not accurate explanations for why firms pay high wages.

Question 10

Unions contribute to structural unemployment when collective bargaining results in wages:

Accepted Answer

Unions can contribute to structural unemployment when they negotiate wages that are above the equilibrium level because employers may not be able to afford to hire as many workers at these higher wages, leading to a surplus of workers at the negotiated wage level.

Question 11

Paying efficiency wages helps firms reduce the problem of moral hazard by:

Accepted Answer

Paying efficiency wages provides an incentive for workers to maintain a high level of productivity, even in the absence of supervision. This is because workers who are paid above-market wages feel a greater sense of obligation to perform at a high level, as they perceive their compensation as a reward for doing so. By reducing the likelihood of shirking and other forms of moral hazard, firms can benefit from higher levels of productivity and profitability. The other choices are not necessarily untrue, but they do not directly address the problem of moral hazard in the same way that paying efficiency wages does.

Question 12

Policies to substantially reduce the natural rate of unemployment should be targeted at:

Accepted Answer

Policies targeted towards the long-term unemployed have a greater potential to substantially reduce the natural rate of unemployment because the longer individuals are unemployed, the more their skills deteriorate, making it harder for them to find work in the future. Additionally, long-term unemployment can lead to other social issues such as poverty and social exclusion. Focusing on addressing the needs of the long-term unemployed can therefore have a positive impact on both the economy and society.

Question 13

Short-term unemployment is most likely to be ______ unemployment, while long-term unemployment is mostly likely to be _____ unemployment.

Accepted Answer

Short-term unemployment is often frictional, occurring when people are between jobs or entering the workforce. Long-term unemployment is more likely to be structural, resulting from fundamental shifts in the economy that reduce the demand for certain skills.

Question 14

According to efficiency-wage theories, firms benefit by paying higher-than-equilibrium wages because worker _____ increases.

Accepted Answer

According to efficiency-wage theories, paying higher wages than the market equilibrium can increase worker productivity. This is because higher wages create a higher incentive for workers to perform well and avoid shirking on the job. Thus, firms benefit from paying higher wages as they can get more out of their workers.

Question 15

When outsiders have a greater role than do insiders in the wage-bargaining process, the negotiated wage is likely to be ______ the equilibrium wage.

Accepted Answer

The answer of When outsiders have a greater role than...

Question 16

The earned income tax credit:

Accepted Answer

The earned income tax credit does not raise labor costs, making it an efficient way to increase the income of low-wage workers. It is a tax credit rather than a minimum wage increase, so it does not directly affect wages.

Question 17

When insiders have a much greater impact on the wage-bargaining process than do outsiders, the negotiated wage is likely to be ______ the equilibrium wage.

Accepted Answer

When insiders (current employees) have a greater impact on the wage-bargaining process than outsiders (potential new hires), they are likely to negotiate for higher wages for themselves, leading to wages that are much greater than the equilibrium wage that would be set by the supply and demand for labor.

Question 18

Centralized union wage bargaining with government intervention in Sweden gives relatively more influence to ______, while firm-level union wage bargaining in the United States gives relatively more influence to ______.

Accepted Answer

Centralized union wage bargaining in Sweden, often involving government intervention, tends to favor the interests of those already employed (insiders) by prioritizing job security and wage stability. In contrast, firm-level union wage bargaining in the United States allows individual firms more flexibility to adjust wages and employment based on their specific circumstances, which can benefit new or potential employees (outsiders) by potentially creating more job opportunities.

Question 19

All of the following statements about minimum-wage workers in the United States are correct except:

Accepted Answer

Minimum-wage workers are actually more likely to be female. According to the Bureau of Labor Statistics, as of 2019, 59% of workers earning at or below the federal minimum wage were women. The other statements are correct.

Question 20

When Henry Ford paid his workers $5 per day when the prevailing wage was between $2 and $3 a day:

Accepted Answer

Henry Ford's decision to pay his workers $5 per day resulted in a significant increase in efficiency, as workers were motivated to work harder and produce more in order to keep their well-paying jobs. This approach contradicts the efficiency-wage theory, which suggests that paying workers more than the prevailing wage will lead to decreased productivity due to complacency.

Quiz 7: Unemployment and the Labor Market