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					CHAPTER 13

EARNINGS, PRODUCTIVITY, AND THE JOB
MARKET
QUESTIONS 1 THROUGH 10 ARE A SUGGESTED CHAPTER QUIZ.

1.    If all persons had identical preferences and productivity factors (ability, skill level, education,
      experience, etc.), the highest paying jobs would be the most
      a. prestigious.
      b. convenient.
      c. undesirable.
      d. easily learned.
2.    Automated production methods are only attractive when they
      a. are undertaken in heavily unionized sectors of the economy.
      b. reduce per-unit costs.
      c. replace workers.
      d. decrease labor productivity.
3.    The fact that some people will work hard to earn a lot of money while others will be content with
      much less income indicates that
      a. worker preferences are an important source of earning differentials.
      b. economics ranks one set of worker preferences as more desirable than another.
      c. some people can be paid less for doing hard work while others have to be paid a premium for
          doing a similar task.
      d. skill levels of laborers are a minor consideration in wage rate determination.
4.    Which of the following is most likely to reduce the nominal market wage in a job category?
      a. The job requires employees to work the night shift from 11 P.M. to 7 A.M.
      b. The job is prestigious, and the work is quite interesting.
      c. The job is widely viewed as dangerous.
      d. The job requires employees to move from city to city quite often.
5.    Wages in the United States are higher than those in India primarily because
      a. the weather is better in the United States.
      b. a larger proportion of the labor force is unionized in the United States.
      c. less capital per employee is required in the United States.
      d. the human and physical capital of American workers exceeds that of their Indian counterparts.
6.    Economic theory suggests that the standard of living of American workers would rise if
      a. the minimum wage were doubled.
      b. automation were outlawed.
      c. workers were forced to retire earlier.
      d. technological improvements increased output per worker-hour.




494
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7.    The earnings of all employees in a competitive economy would be equal if
      a. all individuals were homogeneous.
      b. all jobs were equally attractive.
      c. workers were perfectly mobile among jobs.
      d. all of the above are true.
8.    When employment discrimination results from the personal prejudices of employers, economic
      theory suggests that
      a. it is costless for employers to discriminate against groups they do not like.
      b. the wages of employees who are discriminated against will actually rise.
      c. an employer who discriminates will experience higher costs.
      d. discrimination by an employer will reduce production costs since the employer can pay lower
           wages.
9.    In a market economy, which of the following is most important if one is going to achieve high
      earnings?
      a. hard work
      b. provision of goods and/or services that others value highly
      c. having a graduate degree in a field like history or sociology
      d. membership in a labor union
10.   “Both buyers and sellers are protected by market competition. Competition is the great regulator
      that protects consumers against high product prices (relative to costs) and productive workers
      against low wages.” These statements are
      a. essentially true.
      b. false; competition protects consumers but cannot protect workers.
      c. false; competition protects workers but cannot protect consumers.
      d. true, when consumer protection organizations are active and labor unions are powerful;
           otherwise, it is false.

ANSWER KEY 1 THROUGH 10
1. (c), 2. (b), 3. (a), 4. (b), 5. (d), 6. (d), 7. (d), 8. (c), 9. (b), 10. (a)

WHY DO EARNINGS DIFFER?
11.   Which of the following would cause the demand for computer programmers to increase?
      a. a decline in the productivity of computer programmers
*     b. an increase in the productivity of computer programmers
      c. an increase in the wages of computer programmers due to legislative action (that is, the
          establishment of a price floor for computer programmers)
      d. a reduction in the price of a competitive input that can be substituted for computer
          programmers
12.   Which of the following would cause the demand for plumbers to decrease?
      a. an increase in the productivity of plumbers
*     b. a decline in the demand for and construction of housing
      c. a law that mandated higher wages (a price floor) for plumbers
      d. an increase in the number of plumbers who belong to a union
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13.   How will investments in human capital that upgrade the skills of certain workers to bring them from
      unskilled into the skilled category affect the market for skilled labor relative to unskilled labor?
      a. They will increase the demand for skilled labor.
      b. They will reduce the supply of skilled labor.
*     c. They will increase the supply of skilled labor.
      d. Both a and b are true.
14.   How will investments in human capital that upgrade the skills of Type A workers (so that Type A
      workers are more productive but still not as productive as Type B workers) affect the market for
      Type A workers and Type B workers?
      a. They will increase the wages for Type B workers.
*     b. They will increase the wages for Type A workers.
      c. They will decrease the wages of Type A workers.
      d. They will decrease the wages of Type B workers.
15.   Low-skill workers earn a lower wage than more experienced, higher skilled workers because the
      a. low-skill workers lack the intelligence necessary to do any other form of work.
      b. low-skill workers were never given the opportunity to invest in human capital.
*     c. supply of low-skill workers is large relative to the demand for workers in this skill category.
      d. low-skill workers are too lazy to search for other employment opportunities.
16.   On average, the earnings of college graduates are higher than those with less education because
      a. the jobs in which college graduates are employed generally involve unfavorable working
          conditions and their higher earnings compensate for these conditions.
      b. of their human capital (knowledge that will directly increase job productivity).
      c. signaling (factors that indicate an individual‟s attitude, motivational characteristics, and general
          analytical skills).
*     d. both b and c are true.
17.   An individual who possesses a specialized skill that is difficult to execute will
      a. necessarily receive wages considerably higher than those who lack this skill.
      b. receive a wage determined by the number of other persons possessing this skill.
*     c. receive a high wage only when this skill is in great demand relative to its supply.
      d. receive a wage rate that is lower than similarly productive individuals who lack this skill.
18.   Test pilots are paid high wages by airplane makers primarily because
      a. the demand for labor in this area is very high relative to the demand for labor in other areas of
           employment.
      b. the demand for labor in this area is very low relative to the demand for labor in other areas of
           employment.
      c. the demand for labor in this category is highly elastic.
*     d. few people possess the required skills and the occupation is very risky.
19.   In which one of the following occupational categories will the average annual hours worked
      generally be highest? Remember the concept of opportunity cost.
*     a. lawyer
      b. sales clerk
      c. school teacher
      d. plumber
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20.   Economic models suggest that movie stars have salaries that
      a. greatly exceed their marginal contribution to the movie studio‟s revenue.
      b. understate their full contribution to the movie studio‟s revenue—as the celebrities are the main
          reason that people go to see movies.
*     c. are about equal to their marginal revenue products (MRPs).
      d. can only be explained by looking at specific movie stars and their individual salaries.
21.   Economic studies have generally found that professional sports players have salaries that
      a. greatly exceed their marginal contribution to a team‟s revenue stream.
*     b. are approximately equal to their marginal revenue products.
      c. are about one-half of what they contribute to a team‟s profitability.
      d. are less than one-tenth of their marginal revenue products.
22.   “How can I be overpaid? The boss wouldn‟t pay me that amount if I wasn‟t worth it.” This
      quotation by Jackie Gleason, a popular entertainer of another era, indicates that workers will
      a. not be paid more than their value to their employer.
      b. never be paid less than their marginal revenue product.
      c. not be hired if their compensation exceeds their value to their employer.
*     d. do both a and c.
23.   Compensation where the top performer receives much higher rewards than other competitors, even
      if the others perform at only slightly lower levels, is called
      a. a compensating differential.
      b. round-robin pay.
*     c. tournament pay.
      d. base pay.
24.   A compensation structure that generates much higher pay rates for the top performers, while those
      whose productivity is only a little lower receive substantially less compensation, is called
*     a. tournament pay.
      b. competing differentials.
      c. dueling executives.
      d. winner take all.
25.   In an environment of tournament pay, it is quite likely that marginally more productive employees
      will receive
      a. less than their marginal revenue product, while less productive employees receive more than
           theirs.
*     b. more than their marginal revenue product, while less productive employees receive less than
           theirs.
      c. more than their marginal revenue product, as do less productive employees.
      d. less than their marginal revenue product, as do less productive employees.
26.   The tournament pay explanation is useful in an attempt to explain why
*     a. some corporate executives earn amounts higher than their marginal revenue product.
      b. very few people actually earn the minimum wage.
      c. political entrepreneurs can generate campaign contributions from businesses outside of their
           districts.
      d. people with only a high school education earn less than those with college degrees.
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27.   (I) An important source of earnings differentials is worker preferences.
      (II) Other things constant, people who are more highly motivated by monetary objectives will be
      more likely to do the things necessary to receive higher wages.
*     a. Both I and II are true.
      b. I is true; II is false.
      c. I is false; II is true.
      d. Both I and II are false.
28.   An example of a non-pecuniary job characteristic is
      a. over-time pay.
      b. salary.
      c. an end-of-the-year bonus.
*     d. a comfortable work environment.
29.   Working conditions, prestige, variety, location, employee freedom, and employee responsibilities
      are all examples of
      a. the tools of employment discrimination.
      b. sociological factors affecting employment.
      c. pecuniary job characteristics.
*     d. non-pecuniary job characteristics.
30.   If Congress suddenly passes legislation that required all U.S. workers to receive the same annual
      pay, we would expect
      a. less human capital investment.
      b. a shortage of workers to fill the least desirable jobs.
      c. a surplus of workers to fill the easy, desirable jobs.
*     d. all of the above.
31.   Other things constant, when the work opportunities in an occupation are unstable (that is, layoffs are
      common), the hourly wages of workers in the occupation will tend to be
*     a. higher than the wages of workers with otherwise similar jobs.
      b. lower than the wages of workers with otherwise similar jobs.
      c. below market equilibrium.
      d. above market equilibrium.
32.   Which of the following is most likely to reduce the nominal (money) market wage rate in a job
      category?
      a. The job requires substantial out-of-town travel.
*     b. Employees have considerable flexibility in choosing their work hours.
      c. The job is widely viewed as dangerous.
      d. The job requires employees to move from city to city quite often.
33.   Wages are likely to be higher, everything else equal,
      a. the more desirable the location of the job.
      b. the more prestigious the work environment.
*     c. the more skill is required to perform well on the job.
      d. when the work is safer.
34.   Other things the same, the wages in an occupation are likely to be higher the more
*     a. dangerous the job.
      b. prestigious the work environment of the occupation.
      c. desirable the location of the job.
      d. pleasant the working conditions.
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35.   Window cleaners that work the top floors of high-rise office buildings are, on average, paid
      approximately 30 percent more an hour than those that clean windows on the bottom floor. This is
      an example of
      a. employment discrimination.
      b. non-pecuniary job benefits.
      c. irrational wage compensation.
*     d. compensating wage differentials.
36.   A high-rise construction worker will make _____ money than a typical construction worker,
      assuming that _____.
      a. less; location matters
      b. more; location matters
      c. less; all else is equal
*     d. more; all else is equal
37.   Which of the following is most likely to increase the market wage rate in a job category?
      a. The employer provides a generous pension plan.
      b. The work is widely viewed as safe and not stressful.
      c. The job is widely viewed as interesting and prestigious.
*     d. The job requires employees to move from city to city quite often.
38.   Other things constant, which of the following job characteristics would be most likely to result in a
      higher pay rate for the job?
      a. The employer provides low cost child-care services on the premises.
      b. The job is widely viewed as prestigious.
*     c. The job requires substantial amounts of stressful out-of-town travel.
      d. The job involves working in pleasant surroundings.
39.   Occupations X and Y employ persons with the same productivity. Workers in the two occupations
      work the same number of hours per day when on the job. Employment is stable throughout the year
      in X, while Y is characterized by seasonal layoffs. How will the hourly wage rate and annual
      earnings compare in the two occupations?
      a. The hourly wage rate will be higher in X, but the annual earnings will be higher for Y.
      b. Both the hourly wage rate and annual earnings will be higher in X.
      c. Both the hourly wage rate and annual earnings will be higher in Y.
*     d. The hourly wage rate will be higher in Y, but the annual earnings will likely be higher for X.
40.   If carpentry positions A and B required identical skill levels, other things constant, which one of the
      following would most likely elevate the wage rate of position A relative to position B?
*     a. The work place of position A is in the intense heat of the sun, whereas the work place of B is
           air-conditioned.
      b. Position A is a safe office job; position B requires the employee to operate a dangerous saw.
      c. Position A offers steady employment, whereas employees holding position B are often laid off.
      d. Position A offers more sick leave and more paid holidays.
41.   Which one of the following is most likely to reduce the mobility of labor between jobs?
*     a. an increase in the minimum wage
      b. legislation relaxing licensing requirements for entry into many occupations
      c. the taxation of unemployment compensation in the same manner as income from other sources
      d. both b and c above
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42.   Which of the following could be an institutional barrier to employment?
      a. licensing requirements
      b. labor unions
      c. minimum wages
*     d. all of the above
43.   Compared to the general population, millionaires are more likely to be
      a. well-educated.
      b. old.
      c. self-employed.
*     d. all of the above.
      e. only b and c above.
44.   (I)    The majority of millionaires received most of their wealth through an inheritance.
      (II)   Millionaires tend to be younger than the general population.
      a.     Both I and II are true.
      b.     I is true; II is false.
      c.     I is false; II is true.
*     d.     Both I and II are false.
45.   Which of the following is true?
      a. The majority of millionaires received most of their wealth through an inheritance.
      b. The percentage of the population that are millionaires in inflation-adjusted dollars has been
          stable since the 1970s.
      c. About one-third of millionaires have college degrees.
*     d. More than 75 percent of American millionaires have college degrees.
46.   Millionaires tend to be older than the general population because
      a. older workers generally have more education than younger workers.
*     b. many achieve millionaire status by saving from a relatively modest income, and this will take a
           lengthy period of time.
      c. the earnings of most people peak during the retirement phase of life.
      d. older people have less to do, and therefore, they have more time to come up with innovative
           ideas.
47.   Which of the following is true of America‟s millionaires?
      a. Most millionaires inherited at least half of their wealth.
*     b. Millionaires are far more likely than others to be self-employed entrepreneurs.
      c. It is virtually impossible to achieve this status by saving and investing over a lengthy period of
          time.
      d. Only about 20 percent of the millionaires in the United States have college degrees.

THE ECONOMICS OF EMPLOYMENT DISCRIMINATION
48.   Economic theory suggests that college graduates receive higher wages than those with only a high
      school education because
*     a. college graduates are more productive.
      b. college graduates must be paid higher wages because their educational costs were higher.
      c. college graduates have formed stronger unions.
      d. the supply of high school graduates is small relative to the demand for their labor.
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49.   When employment discrimination results from the personal prejudices of employers, economic
      theory suggests that
*     a. competitive forces will tend to reduce discrimination.
      b. the wages of employees who are discriminated against will rise.
      c. an employer who discriminates will have the same costs as those who do not discriminate.
      d. discrimination by an employer will reduce production costs since the employer can pay lower
           wages.
50.   Suppose that Japanese and Chinese workers are equally productive, but Japanese workers receive a
      higher wage than Chinese workers. Then, refusing to hire Chinese workers would
      a. increase the firm‟s costs.
      b. decrease the firm‟s costs.
      c. increase the firm‟s profits.
      d. decrease the firm‟s profits.
*     e. do both a and d.
51.   Suppose that Joe, a white male, and Sam, a black male, both are financial analysts, but Joe makes a
      higher annual salary than Sam. From these facts, we know that
      a. there is employment discrimination against Sam.
      b. Joe is more productive than Sam.
*     c. either employment discrimination or productivity factors might explain the wage difference.
      d. Joe works more diligently than Sam.
52.   If there is employment discrimination against minorities, this will cause the
      a. supply of their services to increase, and their wages to fall.
*     b. demand for their services to decline, and their wages to fall.
      c. supply of their services to decline, and their wages to rise.
      d. demand for their services to decline, and their wages to rise.
53.   Which of the following is true?
      a. Employers who discriminate against blacks and other minorities will have lower costs than
          rival firms that hire employees strictly on the basis of merit (productivity).
      b. After adjusting for factors such as education, experience, and location, the earnings of black
          men are almost identical to the earnings of similar white men.
*     c. If employers can hire equally productive minority employees at a lower wage than non-
          minorities, the profit motive provides a strong incentive to do so.
      d. The empirical evidence indicates that the earnings gap between whites and blacks is entirely
          the result of employment discrimination.
54.   Which of the following is the clearest evidence of employment discrimination against minority
      employees?
      a. The average wages of minority workers are lower than the average wages of whites.
*     b. The average wages of minority employees are lower than the average wages of whites with
          similar productivity characteristics.
      c. The mean number of years of schooling of minority workers is lower than that of whites.
      d. The average hours worked by minority employees exceeds the hours worked by whites.
55.   Assume that empirical evidence shows a difference in mean earnings between two groups, say,
      majority and minority workers. What conclusion may be drawn?
      a. The group with the lower earnings is being discriminated against.
      b. The group with the lower earnings is less productive.
      c. The group with the lower earnings has less human capital.
*     d. Any of the above statements could, either partially or entirely, explain this difference.
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56.   When comparisons are made between the earnings of whites and minorities with the same age,
      quantity of schooling, marital status, sector of employment, union and industry status, regional
      location, and annual hours worked, recent studies indicate that
      a. the corrected earnings of minority men are about two-thirds the earnings of white men.
      b. earnings differentials between whites and minorities are due almost exclusively to employment
           discrimination.
*     c. the corrected earnings of Mexican-Americans, Asian-Americans, and American Indians were
           between 7 and 9 percent less than the earnings of similar white men.
      d. most minority men now have higher earnings than white men.
57.   When earnings differentials are adjusted for such factors as age, education, and marital status, the
      a. differential between the earnings of white males and those of minority males increases.
*     b. differential between the earnings of white males and those of minority males decreases.
      c. corrected earnings of minority males are equal to those of similar white men.
      d. corrected earnings of minority males are greater than those of similar white men.

THE LINK BETWEEN PRODUCTIVITY AND EARNINGS
58.   The major determinant of an individual‟s income is
      a. whether or not his family is wealthy.
      b. his personality—if the coworkers and the boss like him.
*     c. how productive he is combined with demand for what he produces.
      d. if he earns a salary or if he is paid by the hour.
59.   Which of the following is the primary source of rapid growth in the real earnings of workers?
      a. strong unions
      b. government regulation of labor markets
*     c. rapid growth in worker productivity
      d. increases in the minimum wage
60.   High productivity is the source of high wages. When the output per hour of workers is high, the real
      wages of the workers will also be high. These statements are
*     a. true.
      b. only true when it concerns industrialized countries.
      c. false.
      d. only false when they are applied to underdeveloped countries.
61.   Wages in the United States are higher than wages in China primarily because
*     a. worker productivity is higher in the United States.
      b. in the United States, less capital is required per employee.
      c. China has more natural resources that employees can work with.
      d. the United States has more people and, therefore, a larger number of skilled workers.
62.   Wages in the United States are higher than those in Mexico primarily because
      a. output per worker is higher in Mexico than in the United States.
*     b. output per worker is higher in the United States.
      c. the human and physical capital of American workers is lower than that of their Mexican
         counterparts.
      d. all of the above are correct.
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63.   Which of the following is the primary source of cross-country differences in the real earnings of
      workers?
      a. differences in natural resource endowments
*     b. differences in output per worker
      c. differences in the average number of hours worked
      d. differences in the share of workers that are members of a labor union
      e. access to modern technology
64.   The real wages of workers will tend to be high when
*     a. output per worker is high.
      b. capital is scarce.
      c. industries are automating at a slow rate.
      d. profits are low.
65.   Which of the following is most likely to cause the productivity of labor to increase?
      a. higher money wages
*     b. a higher rate of investment in human and nonhuman capital
      c. more flexible working hours and improved retirement plans
      d. an increase in the proportion of the workforce that belongs to a labor union
66.   Which of the following is true?
      a. When workers are more productive, the demand for their services will be higher.
      b. In order to earn a large income, one must provide large benefits to others.
      c. High productivity (a large output per hour worked) is the key to high earnings for both
          individuals and countries.
*     d. All of the above are true.
67.   The linkage between high productivity and high earnings is vitally important because
      a. it provides individuals with a strong incentive to develop skills and engage in activities that
           others value highly.
      b. high productivity (a large output per hour worked) is the key to high living standards.
      c. it brings the self-interest of individuals into harmony with economic progress.
*     d. all of the above are true.
68.   In a market economy, which of the following is most important if one is going to achieve high
      earnings?
      a. hard work
*     b. provision of goods and/or services that others value highly
      c. having a graduate degree in a field like history or sociology
      d. membership in a labor union
69.   Suppose technological improvements reduced the cost of producing automobiles by 50 percent,
      causing the price of automobiles to decline by a similar amount. Which of the following would
      necessarily result from this development?
      a. Employment in the automobile industry would decrease.
*     b. Real income would increase.
      c. Real income would decrease.
      d. Both a and c are correct.
70.   Economic theory suggests that the standard of living of American workers would rise if
      a. the minimum wage were doubled.
*     b. the knowledge and skills of workers improved.
      c. older workers were forced to retire earlier, opening up jobs for younger workers.
      d. technological setbacks lowered output per worker hour, increasing the number of jobs.
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71.   Economic theory suggests that the standard of living of American workers would fall if the
      a. knowledge and skills of workers improved, reducing the need for workers.
      b. United States had more natural resources.
      c. United States turned to more automated methods of production.
*     d. productivity of American workers declined.
72.   Economic theory suggests that the standard of living of American workers would rise if
*     a. technological change increased output per worker.
      b. the minimum wage were doubled.
      c. automation were outlawed.
      d. a larger proportion of the labor force was unionized.
73.   Firms will only adopt more automated methods of production when
      a. they reduce the need for workers.
*     b. they lower production costs.
      c. they lengthen the production process.
      d. other firms in the industry are doing it.
74.   Automated production methods are only attractive when they
      a. reduce labor productivity.
      b. replace workers.
*     c. decrease per-unit costs of production.
      d. lower wages.
75.   Technological progress generally has the effect of
      a. creating permanently higher levels of unemployment.
*     b. freeing resources that can now go to other uses.
      c. lowering the national standard of living.
      d. doing all of the above.
76.   Which of the following is true?
      a. Automated production processes are generally adopted regardless of whether they reduce costs.
      b. Automated production processes eliminate jobs and, thereby, endanger our future living
          standards.
*     c. Cost-reducing automated production techniques will expand output directly and/or release
          scarce resources for the expansion of output in other areas.
      d. Use of the most advanced technology will always minimize the cost of a productive activity.
77.   “When automation reduces the number of workers required to perform a task, it releases resources
      for use in other productive activities and, thereby, facilitates both the expansion of output and
      achievement of higher living standards.” This statement is
*     a. essentially true.
      b. false; higher living standards cannot be achieved when jobs are being destroyed.
      c. false; output cannot be expanded through automation—that only reduces payrolls.
      d. false; more pay, not larger output, gives workers higher living standards.
78.   During the 1996 to 2000 period, productivity grew at a ________ rate, and real hourly
      compensation grew at a __________ rate compared to the figures for the 1974 to 1995 period.
      a. slower; slower
      b. slower; faster
      c. faster; slower
*     d. faster; faster
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79.   Proponents of the view that the higher rate of productivity growth since 1996 is part of a long-run
      trend argue it is a result of
*     a. a continuing increase in the use of computers and other kinds of information technology.
      b. employers forcing more output from workers, who have become victims of new technologies.
      c. the shrinkage of the labor force, so that output per worker is rising.
      d. the rise of employment in the highly productive manufacturing sector.
80.   During the 1974 to 1995 period, productivity grew at a ________ rate, and real hourly
      compensation grew at a __________ rate compared to the figures for the 1948 to 1973 period.
*     a. slower; slower
      b. slower; faster
      c. faster; slower
      d. faster; faster

COURSEBOOK: MULTIPLE CHOICE QUESTIONS
81.   Evidence suggests that education raises the earnings of the workforce mainly by
*     a. increasing the marginal productivity of labor.
      b. keeping young people out of the labor force, thereby reducing the supply of labor.
      c. teaching workers how to demand more pay.
      d. teaching people to read and write, although education beyond this point does not seem to
          increase worker productivity.
82.   Within an occupation, when a given job provides steadier work (fewer layoffs), the hourly wage
      tends to be
*     a. lower than wage rates in jobs that are otherwise similar.
      b. higher than wage rates in jobs that are otherwise similar.
      c. no different from wage rates in jobs that are otherwise similar.
      d. determined by factors other than supply and demand.
83.   Which of the following is most likely to decrease the market wage rate in a job category?
      a. The employer provides a generous pension plan.
      b. The work is widely viewed as safe and not stressful.
      c. The job is widely viewed as interesting and prestigious.
*     d. All of the above are true.
84.   The fact that some people will work hard to earn a lot of money while others will be content with
      much less income indicates that
*     a. worker preferences are an important source of earning differentials.
      b. economics ranks one set of worker preferences as more desirable than another.
      c. some people can be paid less for doing hard work while others have to be paid a premium for
          doing a similar task.
      d. skill levels of laborers are a minor consideration in wage rate determination.
85.   A compensation structure that generates much higher pay rates for the top performers, while those
      whose productivity is only a little lower receive substantial less compensation is called
*     a. tournament pay.
      b. competing differentials.
      c. dueling executives.
      d. winner take all.
506    Chapter 13/Earnings, Productivity, and the Job Market


86.   Assume that empirical evidence shows a difference in mean earnings between two groups, say,
      majority and minority workers. What conclusion may be drawn?
      a. The group with the lower earnings is being discriminated against.
      b. The group with the lower earnings is less productive.
      c. The group with the higher earnings has a larger quantity of human capital.
*     d. Any of the above statements could, either partially or entirely, explain the difference in the
          mean earnings.
87.   If a firm refuses to hire any minorities due to a personal prejudice, its profits will
      a. increase markedly.
*     b. decrease.
      c. not be affected.
      d. increase slightly.
88.   (I) Productivity growth in the United States since 1996 has been more rapid than it was during the
      previous two decades. (II) Economists believe that the more rapid productivity growth since 1996 is
      in large part due to the computer revolution and related technological innovations.
*     a. Both I and II are true.
      b. I is true; II is false.
      c. I is false; II is true.
      d. Both I and II are false.
89.   Economic theory suggests that the standard of living of American workers would rise if
      a. the minimum wage were doubled.
      b. automation was outlawed.
*     c. the amount of physical capital increased.
      d. technological setbacks lowered output per worker hour.
90.   (I) Differences in worker productivity are one major reason why individual earnings differ. (II)
      Even if all workers were identical, differences in the desirability of jobs would still cause earnings
      differentials.
*     a. Both I and II are true.
      b. I is true; II is false.
      c. I is false; II is true.
      d. Both I and II are false.
91.   Which of the following best states the relationship between machinery and the earnings of labor?
      a. Machines tend to reduce the demand for labor, thereby reducing the earnings rate of labor.
      b. Production of machinery creates jobs, thereby increasing the demand for (and wages of) labor.
*     c. High productivity per worker hour is a necessary ingredient for the attainment of high real
          earnings, and adoption of labor-saving machinery enhances the ability of labor to attain such
          high productivity.
      d. Output and real earnings can always be increased whenever a machine can be substituted for a
          function previously performed by labor.
92.   If large numbers of young Americans thought the life of a cowhand was great (despite the
      hardships), we would expect
      a. an increase in the wages of cowhands.
*     b. a decrease in the wages of cowhands since supply would be enlarged.
      c. no impact on wages, which are determined by supply and demand, not preferences.
      d. a decrease in the wages of cowhands since demand would be reduced.
                                         Chapter 13/Earnings, Productivity, and the Job Market         507


93.   If customers are racist but employers are not, then employment discrimination will be
      a. less profitable than nondiscrimination.
*     b. more profitable than nondiscrimination.
      c. equally profitable as nondiscrimination.
      d. easier to eliminate than if employers were racist but customers were not.
94.   Under a tournament pay scheme, the pay gap between a few “winners” (those who receive big
      promotions) and other employees exceeds the productivity differences between these two groups.
      The reason firms might use such a scheme is that they
      a. overestimate the productivity of those who receive big promotions and inadvertently pay them
          “too much.”
      b. gain tax advantages by paying a few workers large salaries and using fringe benefits to
          compensate the rest of the employees.
      c. hope to raise the productivity of those who receive big promotions since marginal productivity
          adjusts to equal wages.
*     d. hope to raise the productivity of all other workers who will work harder trying to gain a big
          promotion.
95.   Sue states the following: “I much prefer eating at the El Grande Mexican restaurant to the others in
      town because all of their employees are Mexican and speak Spanish. It gives the place a real
      „authentic‟ feel.” Which of the following is true about the above statement?
      a. This is an example of customer-based discrimination for one group of employees over another.
      b. Despite customer preferences, we would expect the restaurants in town to hire equally from all
           racial and ethnic groups.
      c. If many customers felt the same way Sue does, there would be pressure for firms to satisfy this
           consumer preference in their hiring.
*     d. Both a and c are correct.

ON-LINE PRACTICE QUESTIONS
96.   Which of the following best explains why productive workers can command high wages?
      a. the bargaining power of labor unions
      b. the presence of minimum wage legislation
      c. wage and price controls that reflect the political power of labor organizations
*     d. competition among employers for productive workers
97.   Which of the following is most likely to increase the money wages that will be required to attract a
      given number of workers into a job category?
      a. The job is widely viewed as prestigious.
      b. The employer provides child care on the premises.
      c. The employer does not discriminate.
*     d. The work is widely viewed as being stressful and dangerous.
98.   In an economy in which the skills, preferences, and motivations of workers vary widely, equality of
      wage rates would
*     a. lead to shortages and surpluses of resources and the use of involuntary methods of achieving
           work participation.
      b. result in a variety of product prices, but overall GDP would be unaffected.
      c. be efficient if the wages were fixed at a high enough level.
      d. reduce the productive incentives of high-skill workers, an effect that would be offset by the
           increased work effort of low-skill workers.
508    Chapter 13/Earnings, Productivity, and the Job Market


99.   Which of the following would cause the demand for computer programmers to decrease?
*     a. a decrease in the productivity of computer programmers
      b. an increase in the demand for products that computer programmers help to make
      c. an increase in the wages of computer programmers due to legislative action (that is, the
          establishment of a price floor for computer programmers)
      d. an increase in the price of a competitive input that can be substituted for computer
          programmers
100. Assume that Burger King employees work in an air-conditioned environment while McDonald‟s
     employees do not. Other things equal, you would expect wages to be ______ in Burger King
     because ______.
     a. higher, Burger King employees are more productive
     b. lower, McDonald‟s employees are more productive
     c. higher, Burger King is a more prestigious place to work
*    d. lower, Burger King has more favorable working conditions
101. The fact that some people will work hard to earn a lot of money while others will be content with
     much less income indicates that
*    a. worker preferences are an important source of earning differentials.
     b. economics ranks one set of worker preferences as more desirable than another.
     c. some people can be paid less for doing hard work while others have to be paid a premium for
         doing a similar task.
     d. skill levels of laborers are a minor consideration in wage rate determination.
102. Skilled workers receive higher wages than unskilled workers primarily because
     a. they are more highly unionized.
     b. they work harder (more intensely) than less-skilled workers.
*    c. their marginal productivity is higher.
     d. more has been spent on their education.
103. Working hours, job location, and prestige associated with a job are examples of
     a. compensated wage differentials.
*    b. non-pecuniary job characteristics.
     c. pecuniary job characteristics.
     d. employment discrimination.
104. As far as contributions to a professional sports team‟s bottom line are concerned, players generally
     receive about
*    a. what they are worth.
     b. half of what they are worth.
     c. twice what they are worth.
     d. ten times more than what they are worth.
105. Which of the following factors helps explain why top corporate executives often make extremely
     generous salaries relative to managers and executives with only slightly less skill?
     a. labor exploitation
*    b. tournament pay
     c. roundabout methods of payment
     d. first hired, last fired
                                          Chapter 13/Earnings, Productivity, and the Job Market      509


106. A firefighter is likely to earn ______than a receptionist because _______.
     a. more; the job is prestigious
*    b. more; the job is dangerous
     c. less; the job has attractive non-pecuniary characteristics
     d. more; public sector jobs always pay more
107. Which of the following job characteristics will allow an employer to offer a lower money wage and
     still attract workers?
*    a. employer-provided health care
     b. the employer discriminates
     c. poor working conditions
     d. the job has long working hours
108. In order to analyze the effects of employment discrimination, economists must
     a. compare the average annual earnings between minority and majority workers.
*    b. adjust for differences between groups in education, experience, and other productivity-related
          factors.
     c. compare differently qualified groups of employees across a wide range of educational, social,
          racial, and sexual differences.
     d. do all of the above.
109. If a firm refuses to hire any minorities due to a personal prejudice, its profits will
     a. increase markedly.
*    b. decrease.
     c. not be affected.
     d. increase slightly.
110. Suppose the mean earnings of two groups differ. Which of the following would be the logical
     conclusion?
     a. The group with the lowest earnings must be the victim of employment discrimination.
     b. The group with the lowest earnings must be less productive.
     c. The group with the highest earnings is more highly motivated and materialistic.
*    d. Without consideration of preferences and productivity factors, differences in unadjusted mean
         earnings do not necessarily reflect employment discrimination.
111. If a company discriminates because of the employer‟s prejudices,
     a. the company will experience higher profits.
*    b. the company will experience lower profits.
     c. the company will experience lower costs.
     d. both a and c are true.
112. On average, there is a strong ____ relationship between investment in ______ and earnings.
     a. negative; education
     b. negative; human capital
*    c. positive; education
     d. negative; physical capital
113. Which of the following would cause the demand for mathematicians to increase?
     a. a decrease in the productivity of mathematicians
     b. an increase in the wage of mathematicians
*    c. an increase in the productivity of mathematicians
     d. an increase in the productivity of physicists
.
510    Chapter 13/Earnings, Productivity, and the Job Market


114. New technological advancements, such as robots, are
     a. harmful because they put people out of work.
*    b. helpful because they improve worker productivity.
     c. harmful because robots are likely to have electrical problems that could cause injuries to
        people.
     d. both a and c above.
115. Which of the following is the most important source of real wage differences between nations (and
     between time periods)?
     a. the percentage of the labor force that is unionized
     b. the distribution of income
*    c. worker productivity per hour
     d. the size of the labor force
116. A cost-saving invention can even generate an increase in employment in the industry affected by the
     invention if the
*    a. demand for the product is highly elastic.
     b. demand for the product is highly inelastic.
     c. supply of workers is inelastic.
     d. supply of the product is inelastic.
117. The fallacy that automation causes unemployment stems from a failure to recognize
     a. that some people would rather collect unemployment compensation than work.
     b. that it takes a lot of labor to build a machine.
*    c. the secondary effects: The fact that cost-effective automation releases resources so production
         in other areas can be expanded.
     d. the primary effects: The fact that machines do not replace workers, they merely encourage
         them to work harder in order to keep their current job.
118. During the 1996 to 2000 period, productivity
*    a. grew at a faster rate compared to the figure for the 1974 to 1995 period.
     b. fell with the booms and rose with the recessions.
     c. fell compared to the figure for the 1974 to 1995 period.
     d. decreased because of the advent of the Internet.
119. The growth of output per hour and wages
*    a. are closely linked.
     b. are unrelated.
     c. depend upon the education of employees.
     d. depend upon how many hours employees work.
120. Because the supply of low-skill workers is large relative to the demand for low-skill workers, low-
     skill workers
*    a. earn a lower wage than more experienced, higher skilled workers.
     b. lack the intelligence necessary to do any other form of work.
     c. can expect to have stronger job security than high-skill workers.
     d. have no incentive to search for employment opportunities.
121. On average, the earnings of college graduates are higher than those with less education because
     a. the jobs in which college graduates are employed generally involve unfavorable working
         conditions, and higher wages compensate for these conditions.
*    b. college students have skills that will directly increase their productivity.
     c. college students can network better than non-graduates.
     d. college students are more intelligent.
                                        Chapter 13/Earnings, Productivity, and the Job Market         511


122. Which of the following would cause the demand for electricians to decrease?
     a. an increase in the productivity of electricians
*    b. a decline in the demand for and construction of housing
     c. a law that mandated higher wages (a price floor) for electricians
     d. an increase in the number of electricians who belong to a union
123. Considering the concept of opportunity cost, which one of the following occupational categories
     will the average annual hours worked generally be highest?
*    a. lawyer
     b. sales clerk
     c. school teacher
     d. plumber
124. Economic theory suggests that when employment discrimination results from the personal
     prejudices of employers,
*    a. competitive forces will tend to reduce discrimination.
     b. the wages of employees who are discriminated against will rise.
     c. an employer who discriminates will have the same costs as those who do not discriminate.
     d. discrimination by an employer will reduce production costs since the employer can pay lower
          wages.
125. Suppose that male and female workers are equally productive, but male workers receive a higher
     wage than female workers. Refusing to hire female workers would
     a. increase the firm‟s productivity.
     b. decrease the firm‟s costs.
     c. increase the firm‟s profits.
*    d. decrease the firm‟s profits.
126. Which of the following is the clearest evidence of employment discrimination against minority
     employees?
     a. The average wage of minority workers is lower than the average wage of whites.
     b. The average hours worked by minority employees exceed the hours worked by whites.
     c. The mean number of years of schooling of minority workers is lower than that of whites.
*    d. The average wages of minority employees are lower than the average wages of whites with
         similar productivity characteristics.
127. Which of the following is true?
     a. Employers who discriminate against blacks and other minorities will have lower costs than
         rival firms that hire employees strictly on the basis of productivity.
     b. After adjusting for factors such as education, experience, and location, the earnings of black
         men are almost identical to the earnings of white men.
*    c. If minority and white employees in a skill category are equally productive, the profit motive
         provides employers with a strong incentive to hire minority employees if they are available at a
         lower wage.
     d. The empirical evidence indicates that the earnings gap between whites and blacks is entirely
         the result of worker preference.
128. The major determinant of an individual‟s income is
     a. whether or not her family is wealthy.
     b. how well she gets along with her coworkers and boss.
*    c. how productive she is combined with demand for what she produces.
     d. how much she enjoys the work.
512    Chapter 13/Earnings, Productivity, and the Job Market


129. Which of the following is most likely to cause the productivity of labor to increase?
     a. higher money wages
     b. an increase in the proportion of the workforce that belongs to a labor union
     c. more flexible working hours and improved retirement plans
*    d. a higher rate of investment in human and nonhuman capital
130. In a market economy, which of the following is most important if one is going to achieve high
     earnings?
     a. willingness to do hard physical work
*    b. providing goods and/or services that others value highly
     c. performing an important social function, like teaching
     d. having a membership in a labor union
131. Economic theory suggests that the standard of living of American workers would rise if
     a. the minimum wage were doubled.
*    b. the knowledge and skills of workers improved.
     c. older workers were forced to retire earlier, opening up jobs for younger workers.
     d. people bought only American products.

CRITICAL THINKING QUESTIONS
132. Sally and Joe recently graduated from college, both majoring in history. Joe took a prestigious job
     as a legal clerk. Sally took a job as a specialist in fighting forest fires. Both received additional
     training before entering their jobs. Who will likely earn a higher salary and why?
     Answer
     We can identify two reasons that Sally will likely earn more. First, Joe has a prestigious job, and
      these are usually less well-compensated because people find these positions desirable. Second,
      Sally appears to have taken a job that involves a certain amount of risk. Jobs with risk tend to
      receive higher compensation.
133. Given the amount of time and other costs of investing in human capital that it takes to earn a Ph.D.,
     why are college professors paid less than other occupations that require similar or lesser amounts of
     human capital?
     Answer
     If being a college professor is considered prestigious, the compensation need not be as great. Also,
     there are aspects of this profession that many people find desirable. Hours are flexible. The
     environment is clean and safe. There are long vacations during the year, and professors can
     usually take summers off.
134. Ethyl does not like redheads and refuses to hire any at her business. Paul was the perfect job
     candidate on paper, but the personal interview revealed that he was a redhead. Are there any costs to
     Ethyl for not hiring Paul?
     Answer
     Economics suggests that this type of discrimination has a cost. In this case, Ethyl does not get the
     best person for the job. It is likely that her second choice will not be as productive. Also, Paul could
     end up working for one of Ethyl’s competitors. Thus, the competition has improved its position,
     relative to Ethyl’s business.
                                         Chapter 13/Earnings, Productivity, and the Job Market         513


135. In the late 1800s, Bernard made buggy whips. Their quality was such that people came from
     hundreds of miles to buy the whips. As mechanized transportation developed, horse-drawn buggies
     largely disappeared and so did the demand for Bernard‟s whips. Would Bernard have been better off
     if these new modes of transportation had never been invented?
     Answer
     While Bernard’s case is a bit difficult, we can clearly say that society is better off with automobile,
      truck, and air travel. Bernard saw his unique skill made obsolete, and he most likely went out of
      business, but what other job opportunities for those with more general talents like his were created
      by the new modes of transportation? Did Bernard get one of these jobs and with greater earnings?
      Also, like everyone else, Bernard benefited from the reduced transportation costs and wider
      availability of goods that the technology brought.
136. Happyland is a country devoted to consumption. The inhabitants spend all of their income on
     pleasurable things and virtually none on capital investment, human or otherwise. Seriousland is
     frugal, spending very little on consumption and a great deal on human and physical capital. Ten
     years from now, which country would you prefer to inhabit?
     Answer
     Clearly, Happyland cannot continue in its present state. With no investment, there will be a decline
     in productivity, and income should decline accordingly. On the other hand, Seriousland is engaged
     in a course that will generate both productivity and income growth. Over the long run, Seriousland
     will be a much better place to live.
137. Joanne states: “The best way to increase the wages of workers is to increase worker productivity.” Is
     Joanne correct? Why or why not?
     Answer
     Joanne is correct. High productivity is the source of high wages. When the output per hour of
     workers is high, the real wages of the workers will also be high.

				
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