Labor Econ

Front 1

1. Which correctly describes the shape of the wage-schooling locus?
A. The wage-schooling locus is downward sloping because education is generally productive.
B. The wage-schooling locus is upward sloping because education is generally productive.
C. The wage-schooling locus is downward sloping because education is generally unproductive.
D. The wage-schooling locus is upward sloping because education is generally unproductive.
E. The wage-schooling locus is horizontal because wages are unrelated to schooling.

Back 1

B. The wage-schooling locus is upward sloping because education is generally productive.

Front 2

2. The slope of the wage-schooling locus provides an estimate of what?
A. The average years of education as a function of age.
B. The average wage or salary of workers for a given level of schooling.
C. The economic return to an additional year of schooling.
D. The economic cost to an additional year of schooling.
E. The marginal cost to an additional year of schooling.

Back 2

C. The economic return to an additional year of schooling.

Front 3

3. Present value calculations allow one to determine
A. the return to an uncertain asset.
B. the present-day costs and/or benefits of various options.
C. the utility value of a particular option.
D. the social cost of financial calculations.
E. the real wage.

Back 3

B. the present-day costs and/or benefits of various options.

Front 4

4. Which of the following reasons is not a likely explanation as to why college completion rates are greater, on
average, for whites than for blacks?
A. Tuition costs are lower for whites than blacks.
B. Whites have access to more financial capital to pay for college than blacks.
C. Post-college wages are higher for whites than for blacks.
D. Whites have greater access to higher quality public education at the elementary and secondary level.
E. Whites are more able to postpone earnings at age 18 than are blacks.

Back 4

A. Tuition costs are lower for whites than blacks.

Front 5

5. What does not enter into the present value calculation of a college degree?
A. The cost of college tuition.
B. The cost of books.
C. Wages of college graduates.
D. Lifetime wages of non-college graduates.
E. The value of one’s scholarships.

Back 5

D. Lifetime wages of non-college graduates.

Front 6

6. What is an example of specific job training?
A. Learning word-processing skills.
B. Learning how to use the firm’s payroll system.
C. Getting one’s GED.
D. Both (A) and (B) are examples of specific job training.
E. All of (A), (B), or (C) are examples of specific job training.

Back 6

B. Learning how to use the firm’s payroll system.

Front 7

7. What is an example of general job training?
A. Learning the floor design of a large factory.
B. Learning how to weld.
C. Reading a book on techniques for managing large groups of workers involved on team projects.
D. Both (B) and (C) are examples of general job training.
E. All of (A), (B), or (C) are examples of general job training.

Back 7

B. Learning how to weld.
C. Reading a book on techniques for managing large groups of workers involved on team projects.

Front 8

8. Why is it that a firm will typically not pay for general training?
A. General training is free.
B. General training is too expensive.
C. General training usually doesn’t increase worker productivity.
D. The skills gained from the general training are transferable to other firms.
E. The benefits of general training depreciate quickly.

Back 8

D. The skills gained from the general training are transferable to other firms.

Front 9

9. Paula is considering going to law school. If she does, she will spend $60,000 on tuition and books to get a
college education (during the first time period), $120,000 on tuition and books to get a law degree (during the
second time period), and her law degree will earn her $620,000 during the remainder of her work-life (during the
third time period). Paula’s time preference for money is associated with a per-period interest rate of 20 percent.
Approximately what is the present value of going to college?
A. $100,100
B. $210,400
C. $270,500
D. $440,000
E. $621,900

Back 9

C. $270,500

Front 10

10. What is the stopping rule for choosing one’s years of schooling?
A. End one’s schooling when the return from more schooling is zero.
B. End one’s schooling when the cost of one more year of schooling is zero.
C. End one’s schooling after college.
D. End one’s schooling when the rate of return to one more year of schooling equals the worker’s rate of discount.
E. End one’s schooling when the worker’s rate of discount equals zero.

Back 10

D. End one’s schooling when the rate of return to one more year of schooling equals the worker’s rate of discount.

Front 11

11. Why might people choose to go to college?
A. Because a college education signals to firms that the worker is highly motivated.
B. Because a college education increases one’s productivity, which will be rewarded in the labor market with higher
wages.
C. Because someone enjoys the process of becoming educated.
D. Both (A) and (B) are reasons why people choose to go to college.
E. All of (A), (B), and (C) are reasons why people choose to go to college.

Back 11

E. All of (A), (B), and (C) are reasons why people choose to go to college.

A. Because a college education signals to firms that the worker is highly motivated.
B. Because a college education increases one’s productivity, which will be rewarded in the labor market with higher
wages.
C. Because someone enjoys the process of becoming educated.

Front 12

12. Human capital refers to:
A. The amount of financial capital owned by firm owners.
B. The amount of financial capital owned by workers.
C. The amount of physical capital a firm owns per worker it employs.
D. The unique set of abilities and skills embedded in workers.
E. The amount of physical capital produced by labor.

Back 12

D. The unique set of abilities and skills embedded in workers.

Front 13

13. Why do workers typically pursue their education while young?
A. Because there is more time to benefit from the higher wages that are typically associated with more education.
B. Because all of their friends pursue education while young.
C. Because living expenses are low for a younger person.
D. Because parents force their children to attend college immediately after high school.
E. Because they are more likely to receive a scholarship

Back 13

A. Because there is more time to benefit from the higher wages that are typically associated with more education.

Front 14

14. What is implied when the wage-schooling profile is drawn as a concave function?
A. The marginal return to schooling falls as years of schooling increases.
B. The marginal return to schooling increases as years of schooling increases.
C. Average wages fall as years of schooling increases.
D. The cost of schooling increases, but at a decreasing rate, as years of schooling increases.
E. The cost of schooling decreases, but at an increasing rate, as years of schooling increases.

Back 14

A. The marginal return to schooling falls as years of schooling increases.

Front 15

15. Which statement about human capital is false?
A. Human capital gives firms a way to differentiate between workers.
B. Workers accumulate human capital during formal education and through life experiences.
C. There is more human capital in the U.S. now than there was 100 years ago.
D. Human capital has a low rate of return.
E. Human capital tends to be an important determinant of one’s wages.

Back 15

D. Human capital has a low rate of return.

Front 16

16. People decide how much schooling to receive based on:
A. Their discount rate.
B. The marginal rate of return to schooling.
C. The present value of expected future earnings.
D. Their ability to succeed in education programs.
E. All of the above factors influence how much schooling one receives

Back 16

E. All of the above factors influence how much schooling one receives

Front 17

17. In order to use schooling as a signal:
A. The signal must be more costly for low-skilled workers than for high-skilled workers.
B. The cost of purchasing the signal must not be so costly that high-skilled workers don’t value obtaining it.
C. Firms must be able to easily verify each worker’s amount of schooling.
D. Some people must choose to not complete schooling.
E. All of the above are required for schooling to serve as a signal.

Back 17

E. All of the above are required for schooling to serve as a signal.

Front 18

18. Selection bias is a problem when trying to estimate the return to education in a standard human capital model.
In this context, what does selection bias refer to?
A. Having a non-random data sample.
B. Workers self-select education levels and jobs based on their abilities and preferences.
C. Colleges select who they are willing to accept.
D. The wage-schooling locus does not have a constant slope.
E. The wage-schooling locus is estimated to have a negative slope.

Back 18

B. Workers self-select education levels and jobs based on their abilities and preferences.

Front 19

19. Suppose 40 percent of all potential workers are highly skilled and contribute $50,000 to the firm each year. The
remaining 60 percent of potential workers are less skilled and contribute only $30,000 to the firm each year. When
schooling is not used as a signaling device, how much is the firm willing to pay a worker chosen at random?
A. $30,000
B. $34,000
C. $38,000
D. $42,000
E. $50,000

Back 19

C. $38,000

Front 20

20. Suppose 40 percent of all potential workers are highly skilled and contribute $50,000 to the firm each year. The
remaining 60 percent of potential workers are less-skilled and contribute only $30,000 to the firm each year.
Schooling costs a highly skilled worker y, while it costs a less-skilled worker 2y. What range of y will support a
signaling equilibrium?
A. $5,000 < y < $10,000
B. $5,000 < y < $20,000
C. $10,000 < y < $20,000
D. $0 < y < $50,000
E. $20,000 < y < $50,000

Back 20

C. $10,000 < y < $20,000

Front 21

21. Suppose Amy has 100 efficiency units of labor; Bill has 50 efficiency units of labor; and Chris has 20 efficiency
units of labor. Which of the following is true?
A. A firm will always hire Amy over Chris, regardless of wages.
B. A firm will hire Amy if her wage is at least twice that of Bill’s and at least five times that of Chris’s.
C. A firm will hire Amy if her wage is at most double that of Bill’s and at most five times that of Chris’s.
D. A firm will never hire Bill.
E. A firm will never hire Chris.

Back 21

C. A firm will hire Amy if her wage is at most double that of Bill’s and at most five times that of Chris’s.

Front 22

22. Temporary layoffs are common in the United States especially among workers who are heavily invested with
specific training. Why?
A. Specific training deteriorates quickly, so a laid-off worker with specific training is not valuable to any firm.
B. The laid-off worker with specific training is more valuable to the firm that laid her off than she is to any other
firm. Thus, it is in the worker’s best interest to remain unemployed until recalled to work at her original firm.
C. Workers without specific training are never hired in the first place.
D. Workers with specific training know they don’t need to work hard when employed.
E. Unemployment benefits are tied to specific training

Back 22

B. The laid-off worker with specific training is more valuable to the firm that laid her off than she is to any other
firm. Thus, it is in the worker’s best interest to remain unemployed until recalled to work at her original firm.

Front 23

23. The optimal stopping rule, when applied to the decision of how many years of schooling to complete, is best
described how?
A. Complete more years of education until the marginal rate of return to schooling is zero.
B. Complete more years of education until the personal discount rate is zero.
C. Complete more years of education until the discount rate falls below the marginal rate of return to schooling.
D. Complete more years of education until the marginal rate of return to schooling falls below the discount rate.
E. Complete more years of education as long as the cost of a year of education is less than the annual income one
could earn if not in school.

Back 23

B. Complete more years of education until the personal discount rate is zero.

Front 24

24. If ability is positively related to schooling, then estimating the returns to education directly from the wageschooling profile will likely
A. under-estimate the return to schooling.
B. over-estimate the return to schooling.
C. under-estimate the average wage.
D. over-estimate the average wage.
E. under-estimate the average discount rate.

Back 24

B. over-estimate the return to schooling.

Front 25

25. Suppose all 18 year-olds are identical in everyway except that some have easy access to credit (i.e., they face a
low interest rate when borrowing money) while others have a difficult time accessing credit (i.e., they face a high
interest rate when borrowing money). Which of the following statement(s) is (are) true?
A. Those who have easy access to credit will act as if they have a lower rate of discount than those who do not have
easy access to credit.
B. Those who have easy access to credit will be more likely to go on to college than those who do not have easy
access to credit.
C. The present value calculation of college will be higher for those who have easy access to credit than for those
who do not have easy access to credit.
D. Both (A) and (B) are true.
E. All of (A), (B), and (C) are true.

Back 25

E. All of (A), (B), and (C) are true.

Front 26

26. The average salary of college graduates generally compares how to the average salary of high school graduates?
A. The average salary of college graduates is about twice that of high school graduates regardless of sex or race.
B. The average salary of college graduates is about twice that of high school graduates for men; for women the
average salary of college graduates is only slightly higher than that of high school graduates.
C. The average salary of college graduates is about twice that of high school graduates for whites; for blacks the
average salary of college graduates is over three times higher than that of high school graduates.
D. Both (B) and (C) are true.
E. None of (A), (B), or (C) are true.

Back 26

A. The average salary of college graduates is about twice that of high school graduates regardless of sex or race.

Front 27

27. Which group of workers tends to have the highest unemployment rate among high school dropouts?
A. Men
B. Women
C. Blacks
D. Hispanics
E. Whites

Back 27

C. Blacks

Front 28

28. In 2007, what was the relationship between education and unemployment rates in the U.S. labor market?
A. Unemployment rates were unrelated to education, averaging about 6%.
B. Unemployment fell with education – being about 20 percent for those without a high school degree, 10 percent
for those with a high school degree, and less than 5 percent for those with more than a high school degree.
C. Unemployment fell with education – being about 12 percent for those without a high school degree, 10 percent
for those with a high school degree, and less than 8 percent for those with more than a high school degree.
D. Unemployment fell with education – being about 9 percent for those without a high school degree, 5 percent for
those with a high school degree, and less than 2 percent for those with more than a high school degree.
E. Unemployment increased with education – being about 4 percent for those without a high school degree, 6
percent for those with a high school degree, and more than 8 percent for those with more than a high school degree.

Back 28

D. Unemployment fell with education – being about 9 percent for those without a high school degree, 5 percent for
those with a high school degree, and less than 2 percent for those with more than a high school degree.

Front 29

29. Approximately what percent of people in the United States typically do not graduate from high school?
A. 2%
B. 5%
C. 10%
D. 15%
E. 20%

Back 29

D. 15%

Front 30

30. Approximately what percent of people in the United States typically receive more education than just a high
school degree?
A. 25%
B. 40%
C. 50%
D. 75%
E. 90%

Back 30

C. 50%

Front 31

1. What does it mean for the U.S. economy to have a positively skewed wage distribution?
A. Most workers earn below the average wage.
B. A small proportion of workers earn very high wages.
C. The average wage equals the median wage.
D. Both (A) and (B) are implied by a positively skewed wage distribution.
E. Both (A) and (C) are implied by a positively skewed wage distribution.

Back 31

D. Both (A) and (B) are implied by a positively skewed wage distribution.

Front 32

2. In the United States, the poorest 10 percent of households earns approximately what share of total income?
A. 2%
B. 5%
C. 10%
D. 20%
E. 50%

Back 32

A. 2%

Front 33

3. In the United States, the wealthiest 10 percent of households earns approximately what share of total income?
A. 5%
B. 10%
C. 30%
D. 50%
E. 80%

Back 33

C. 30%

Front 34

4. Higher values of the Gini coefficient are associated with
A. greater education inequality.
B. greater income inequality.
C. less income inequality.
D. greater labor mobility.
E. less labor mobility.

Back 34

B. greater income inequality.

Front 35

5. In general terms, which of the following regarding changes in inequality in the United States is correct?
A. Inequality has increased over the last 30 years as witnessed by the Gini coefficient increasing from about 0.1 in
1970 to about 0.7 in 2000.
B. Inequality has increased over the last 30 years as witnessed by the Gini coefficient increasing from about 0.3 in
1970 to about 0.4 in 2000.
C) Inequality has decreased over the last 30 years as witnessed by the Gini coefficient decreasing from about 0.5 in
1970 to about 0.05 in 2000.
D. Inequality has decreased over the last 30 years as witnessed by the Gini coefficient decreasing from about 0.8 in
1970 to about 0.25 in 2000.
E. Inequality

Back 35

B. Inequality has increased over the last 30 years as witnessed by the Gini coefficient increasing from about 0.3 in
1970 to about 0.4 in 2000.

Front 36

6. The Gini coefficient in a perfectly unequal society will have a Gini coefficient of _____ while a perfectly equal
society will have a Gini coefficient equal to _____.
A. 0 : 1
B. 1 : 0
C. 0 : infinity
D. infinity : 0
E: -1 : 1

Back 36

B. 1 : 0

Front 37

7. Consider two economies, both with 1,000 people and both with an average per capita income of $10,000. In
Anyland, 999 households receive no income while one household receives all $10 million. In Everyland, 999
households each receive $1,001 of income while one household receives $9 million. The 90 – 10 wage gap in
Anyland is _____ while the 90 – 10 wage gap in Everyland is _____ .
A. 0 : 0
B. 1 : 0
C: 10 : 0
D. 1 : 10
E. 0 : 10

Back 37

A. 0 : 0

Front 38

8. Which of the following is not a possible explanation as to why wage inequality increased markedly over the last
40 years in the United States?
A. There was an increase in the supply of low-skill workers.
B. Federal legislation allowed employers to legally engage in more racial discrimination.
C. Competition from international economies has increased demand for highly productive workers.
D. Recent technological changes have been complementary to skilled labor (while substituting for unskilled labor).
E. Institutional changes in the United States such as a steady decline in union coverage and a falling real minimum
wage have led to changes in the wage distribution

Back 38

B. Federal legislation allowed employers to legally engage in more racial discrimination.

Front 39

9. From 1965 to 2005, the 90 – 10 wage gap in the United States has
A. held constant at roughly 100.
B. held constant at roughly 200.
C. held constant at roughly 200 until 1980 and has steadily increased to about 400 since then.
D. held constant at roughly 200 until 1980 and has steadily decreased to under 100 since then.
E. increased steadily from 200 in 1960 to over 500 in 2000.

Back 39

C. held constant at roughly 200 until 1980 and has steadily increased to about 400 since then.

Front 40

10. The positive correlation between ability and human capital investments “stretches out” wages in the population,
generating what?
A. A positively skewed wage distribution.
B. A negatively skewed wage distribution.
C. An inconsistent wage distribution.
D. A uniform wage distribution.
E. A symmetric wage distribution.

Back 40

A. A positively skewed wage distribution.

Front 41

11. What does the Gini coefficient measure?
A. The rate of growth of income inequality over time.
B. The degree of inequality in an income distribution.
C. The correlation coefficient between income and education.
D. The covariance of income and education.
E. The degree of tax incidence paid by poor workers.

Back 41

B. The degree of inequality in an income distribution.

Front 42

12. Which of the following statements regarding the increase in supply of high-skill labor in the United States since
1960 as measured by education level is not true?
A. The percent of workers without a high school degree has fallen dramatically since 1960.
B. The percent of workers with a high school degree has fallen dramatically since 1960.
C. The percent of workers with a college degree has increased dramatically since 1960.
D. The percent of workers with an advanced degree has increased dramatically since 1960.
E. The supply of highly-skilled women to the workforce has increased dramatically since 1960.

Back 42

B. The percent of workers with a high school degree has fallen dramatically since 1960.

Front 43

13. Which of the following does not measure inequality?
A. The 90 – 10 wage gap.
B. The 50 – 10 wage gap.
C. The Gini coefficient.
D. The actual Lorenz curve.
E. The pefect-equality Lorenz curve.

Back 43

E. The pefect-equality Lorenz curve.

Front 44

14. What is meant by the skill-bias technological explanation of increasing inequality?
A. There has been increasing inequality over the last 40 years because unskilled workers use no technology.
B. There has been increasing inequality over the last 40 years among high-skilled workers.
C. Inequality has increased because technological advances have not kept pace with the demand for education.
D. Inequality has increased because technological advances over the last 40 years have complemented the
productivity of skilled labor relative to unskilled labor.
E. Inequality has increased because technological advances over the last 40 years have complemented the
productivity of unskilled labor relative to foreign labor

Back 44

D. Inequality has increased because technological advances over the last 40 years have complemented the
productivity of skilled labor relative to unskilled labor.

Front 45

15. Suppose the distribution of innate ability is distributed symmetrically throughout a population but that the wage
distribution is positively skewed. What most likely explains this?
A. A regressive tax code.
B. Increased immigration.
C. Differences in human capital accumulation.
D. A decreasing Gini coefficient.
E. A non-competitive labor market.

Back 45

C. Differences in human capital accumulation.

Front 46

16. Which of the following measures would best allow one to compare the relative wealth of poor households to the
typical household in an economy?
A. The perfect-equality Lorenz curve.
B. The Gini coefficient.
C. The 90 – 10 wage gap.
D. The 50 – 10 wage gap.
E. The 90 – 50 wage gap.

Back 46

D. The 50 – 10 wage gap.

Front 47

17. Expansions in globalization and the reduction of trade barriers world-wide during the 1980s and 1990s most
likely had what effect on the demand for U.S. labor?
A. The demand for unskilled workers increased, while the demand for skilled workers decreased.
B. The demand for unskilled workers decreased, while the demand for skilled workers increased.
C. The demand for unskilled and skilled workers increased.
D. The demand for unskilled and skilled workers decreased.
E. The demand for unskilled workers increased, while the demand for skilled workers didn’t change.

Back 47

B. The demand for unskilled workers decreased, while the demand for skilled workers increased.

Front 48

18. Technological advancements would likely shift out the demand for skilled labor relative to unskilled labor if the
technological advancements
A. are biased towards those with high skills.
B. allow firms to substitute technology for unskilled workers.
C. complement the skills of highly educated workers.
D. increase the productivity of skilled workers relative to unskilled workers.
E. All of the above

Back 48

E. All of the above

Front 49

19. Consider an economy with a particular distribution of income. Over the next 10 years, the income of all
households increases by $20,000. How has the Gini coefficient changed over those 10 years?
A. The Gini coefficient must have increased.
B. The Gini coefficient must have decreased.
C. The Gini coefficient stayed the same as all households received the same increase in income.
D. The Gini coefficient must have become more negative.
E. It is impossible to determine how the Gini coefficient changed as it will depend on the original income
distribution.

Back 49

B. The Gini coefficient must have decreased.

Front 50

20. Large disparities in wages could possibly result from all but which one of the following?
A. Parental investment in a child’s human capital.
B. Increases in the amount of middle class jobs.
C. Skill-biased technological change.
D. Globalization.
E. An increase in the supply of highly skilled labor

Back 50

B. Increases in the amount of middle class jobs.

Front 51

21. All but which one of the following statements about the Gini coefficient is true:
A. The Gini coefficient reflects the data shown in the Lorenz curve.
B. The Gini coefficient equals zero when there is perfect equality.
C. The Gini coefficient increases as income inequality increases.
D. The Gini coefficient must fall when the amount of income in an economy increases.
E. The Gini coefficient equals one when there is perfect inequality.

Back 51

D. The Gini coefficient must fall when the amount of income in an economy increases.

Front 52

22. What is the Gini coefficient associated with the following income distribution?
Household
Percentile
Share of
Income
Cumulative Share
of Income
20
th
0.05 0.05
40
th
0.10 0.15
60
th
0.20 0.35
80
th
0.25 0.60
100
th
0.40 1.00
A. 0.10
B. 0.25
C. 0.30
D. 0.34
E. 0.40

Back 52

D. 0.34

Front 53

23. What is the 50-10 wage gap if the 10
th
percentile wage is $25,000; the 50
th
percentile wage is $62,000; and the
90
th
percentile wage is $95,000?
A. 0.52
B. 0.75
C. 1.48
D. 2.25
E. 2.78

Back 53

C. 1.48

Front 54

24. The Lorenz curve shows
A. the maximum and minimum wage gaps.
B. the relationship between income and tax revenue.
C. the cumulative share of income earned by quintiles of households.
D. the share of income received by age group.
E. the relationship between income and earnings potential.

Back 54

C. the cumulative share of income earned by quintiles of households.

Front 55

25. The earnings distribution refers to:
A. The distribution of wages or earnings in an economy.
B. The distribution of wages or earnings over an individual’s life.
C. The distribution of wages or earnings between races.
D. The distribution of wages or earnings between genders.
E. The distribution of wage offers in an economy.

Back 55

A. The distribution of wages or earnings in an economy.

Front 56

26. The superstar phenomenon explains:
A. Why some people are paid extraordinary sums of money for talents that many people have.
B. Why most people are paid relatively modest sums of money for talents that just a few people have.
C. Why a few people are paid extraordinary sums of money for extreme talents than only a few people have.
D. Why superstars have talents that far exceed even the next best person in the field.
E. Why there are fewer superstars with the passing of time

Back 56

C. Why a few people are paid extraordinary sums of money for extreme talents than only a few people have.

Front 57

27. Social mobility refers to:
A. The ability for a worker to move up in a firm’s hierarchy.
B. The ability for a worker to increase his or her human capital.
C. The link between the skills and income of parents and children.
D. The relationship between human capital and wages.
E. The degree to which society dictates the wage distribution.

Back 57

C. The link between the skills and income of parents and children.

Front 58

28. Which of the following would help maintain an intergenerational coefficient close to 1?
A. Rich parents using networks of friends to get their children into good colleges and into good jobs.
B. The children of poor workers being required to attend sub-par elementary schools.
C. A progressive tax structure.
D. Both (A) and (B) would help maintain an intergenerational coefficient close to 1.
E. All of (A), (B), and (C) would help maintain an intergenerational coefficient close to 1

Back 58

D. Both (A) and (B) would help maintain an intergenerational coefficient close to 1.

Front 59

29. What has happened to wage dispersion in the United States over the last 30 years?
A. Wage dispersion has narrowed for all groups of workers.
B. Wage dispersion has increased for all groups of workers.
C. Wage dispersion has increased for skilled workers but has narrowed for unskilled workers.
D. Wage dispersion has decreased for skilled workers but has increased for unskilled workers.
E. Wage dispersion has increased for men but has narrowed for women.

Back 59

B. Wage dispersion has increased for all groups of workers.

Front 60

30. How does the income distribution in the United States compare to other developed countries?
A. The income distribution is vastly more unequal in the United States compared to other developed countries.
B. The income distribution is vastly more equal in the United States compared to other developed countries.
C. The income distribution tends to be more unequal in the United States compared to other developed countries, but not by a huge amount.
D. The income distribution tends to be more equal in the United States compared to other developed countries, but
not by a huge amount.
E. The income distribution tends is the same in all developed countries, the United States included, because of
increased globalization.

Back 60

C. The income distribution tends to be more unequal in the United States compared to other developed countries, but not by a huge amount.

Front 61

1. The perceived cost of hiring a black worker for an employer who is prejudiced against blacks will exceed what?
A. The cost of hiring whites.
B. The wage of whites.
C. The wage of blacks.
D. The white-black wage gap.
E. Total profit.

Back 61

C. The wage of blacks.

Front 62

2. Profit-maximizing firms that do not discriminate will hire workers up to the point where:
A. The wage of whites equals the value of the marginal product of labor.
B. The wage of blacks equals the value wage of whites.
C. Total costs equal total profits.
D. The wage of blacks is greater than the wage of whites.
E. The wage of blacks is less than the wage of whites.

Back 62

B. The wage of blacks equals the value wage of whites.

Front 63

3. Economic theory suggests that discriminating employers will be driven from the marketplace when the output
market is competitive. Why?
A. Customers will refuse to purchase from a discriminating employer.
B. Workers will refuse to work for a discriminating employer.
C. The government mandates that the employer not act on his or her desire to discriminate.
D. Discrimination imposes an additional cost on the employer; and high-cost firms are eventually driven out of a
competitive output market.
E. A competitive output market requires all workers to be paid the same wage.

Back 63

D. Discrimination imposes an additional cost on the employer; and high-cost firms are eventually driven out of a
competitive output market.

Front 64

4. Which of the following is not true concerning employee discrimination?
A. Employers have no reason to employ a segregated workforce if there is employee discrimination.
B. Employee discrimination does not affect the profitability of firms.
C. Discriminating employees act as if their wage is less than it actually is if they are employed by a firm that has an
integrated workforce.
D. Workers accept the utility-maximizing job offer even when there is employee discrimination.
E. Employee discrimination will not produce a wage differential between equally skilled black and white workers.

Back 64

A. Employers have no reason to employ a segregated workforce if there is employee discrimination.

Front 65

5. Suppose the marginal revenue product is $20 per hour regardless of race. An employer who faces an hourly
wage of $14 per black worker and $17 per white worker decides to hire all white workers. What kind of
discrimination is this?
A. Employee discrimination.
B. Consumer discrimination.
C. Employer discrimination.
D. Statistical discrimination.
E. None of the above.

Back 65

C. Employer discrimination.

Front 66

6. The Human Resources department at a firm has two job candidates for one position. Both candidates went to the
same college, took the same classes and have the same ranking. They both performed well in the interview and said
that they see the job as a long-term position. One applicant is male and one is female. Historically within the firm,
women have a shorter average stay within the firm. Because of this, the firm fills the position with the male
candidate. What kind of discrimination is this?
A. Employee discrimination.
B. Consumer discrimination.
C. Employer discrimination.
D. Statistical discrimination.
E. None of the above.

Back 66

D. Statistical discrimination.

Front 67

7. Over the last 30 years in the United States, the black-white earnings ratio for women has __________ and for
men has __________.
A. been relatively flat : steadily increased
B. been relatively flat : steadily decreased
C. steadily increased : steadily increased
D. steadily increased : steadily decreased
E. steadily increased : been relatively flat

Back 67

A. been relatively flat : steadily increased

Front 68

8. In the standard Becker model of discrimination, each firm is associated with a discrimination coefficient of d > 0
and acts as if the wage paid to blacks is wB(1+d) where wB is the actual hourly wage paid to blacks In equilibrium,
a threshold level of d, labeled d*, comes about that sorts firms based on hiring decisions. Which of the following is
not an outcome of this model?
A. All firms with d ≠ d* will employ all blacks or all whites.
B. Profits fall as d increases as long as d < d*.
C. In the long run, discrimination will be competed away in a competitive labor market.
D. All discriminating firms hire only white workers.
E. All firms with d > d* earn the same amount of profit.

Back 68

D. All discriminating firms hire only white workers.

Front 69

9. If one looks at U.S. Census data and finds that the average male salary is $43,000 while the average female salary
is $38,000, which of the following is not likely to be a significant cause of this difference given U.S. labor market
demographics?
A. Women are more inclined than men to work part-time.
B. Women have less education than men.
C. Women and men prefer different kinds of jobs.
D. Labor market discrimination.
E. On-the-job experience.

Back 69

B. Women have less education than men.

Front 70

10. If one looks at U.S. Census data and finds that the average white salary is $39,000 while the average black
salary is $36,000, which of the following is not likely to be a significant cause of this difference given U.S. labor
market demographics?
A. Whites are more inclined than blacks to work part-time.
B. Blacks have less education than whites.
C. Labor market discrimination.
D. Whites are more likely than blacks to hold positions in upper management.
E. Whites are more likely than blacks to own their own business.

Back 70

D. Whites are more likely than blacks to hold positions in upper management.

Front 71

11. In a discrimination model, nepotism is best described as:
A. A desire to maximize profit regardless of who one hires.
B. A preference to hire a certain type of worker, e.g., a worker of one’s same race.
C. A preference to hire an integrated workforce.
D. A desire to advance social causes over maximizing profits.
E. Hiring minority workers but then firing them quickly.

Back 71

B. A preference to hire a certain type of worker, e.g., a worker of one’s same race.

Front 72

12. A large employer gives each new hire an aptitude test, which is scored from 1 to 20. Let T be a worker’s score
on the test. The firm then pays the new worker a wage of w = 0.6T + 0.4G where G is the average test score for the
worker’s gender – 16 for women; 12 for men. What is the wage of a female who scores a 6 on the test?
A. $3.60
B. $6.00
C. $7.20
D. $8.40
E. $10.00

Back 72

E. $10.00

Front 73

13. A large employer gives each new hire an aptitude test, which is scored from 1 to 20. Let T be a worker’s score
on the test. The firm then pays the new worker a wage of w = 0.6T + 0.4G where G is the average test score for the
worker’s gender – 16 for women; 12 for men. What is the wage of a male who scores a 6 on the test?
A. $3.60
B. $6.00
C. $7.20
D. $8.40
E. $10.00

Back 73

D. $8.40

Front 74

14. Consider the following data for men and women:
Men Women
Average Hourly Wage: $12.40 $9.90
Average Years of Work Experience: 14.3 9.5
If a regression estimates the return to experience for men, βM, to be 0.25, how much of the average difference in
wages can be attributed to differences in work experience and how much can be attributed to discrimination and/or
unobservable characteristics?
A. $0.00 to differences in work experience; $2.50 to discrimination/unobservable characteristics.
B. $1.20 to differences in work experience; $1.30 to discrimination/unobservable characteristics.
C. $1.30 to differences in work experience; $1.20 to discrimination/unobservable characteristics.
D. $1.50 to differences in work experience; $1.00 to discrimination/unobservable characteristics.
E. $2.50 to differences in work experience; $0.00 to discrimination/unobservable characteristics

Back 74

B. $1.20 to differences in work experience; $1.30 to discrimination/unobservable characteristics.

Front 75

15. Which of the following is a problem with comparable worth programs?
A. Women will be paid more than men even when they are not as productive.
B. Workers will be less likely to train in occupations or move to those jobs where they have the largest value of
marginal product.
C. Jobs traditionally filled by women will find it difficult to fill vacancies.
D. Men will replace women in traditional female occupations.
E. Women will be unable to perform jobs traditionally held by men.

Back 75

C. Jobs traditionally filled by women will find it difficult to fill vacancies.

Front 76

16. Occupational crowding refers to
A. Employee-based discrimination.
B. Licensure requirements to enter certain occupations.
C. Women being intentionally segregated into particular occupations.
D. Firms receiving more applications for high-wage job openings than for low-wage job openings.
E. Low turnover associated with high-wage occupations.

Back 76

C. Women being intentionally segregated into particular occupations.

Front 77

17. From 1980 to 2005, the female-male wage ratio in the United States
A. held constant at about 0.7.
B. fell steadily from about 1.0 in 1980 to 0.5 in 2005.
C. increased modestly from 0.5 in 1980 to almost 0.6 in 2005.
D. increased substantially from 0.6 in 1980 to almost 0.8 in 2005.
E. increased substantially from 0.4 in 1980 to over 0.7 in 2005.

Back 77

D. increased substantially from 0.6 in 1980 to almost 0.8 in 2005.

Front 78

18. Comparable worth programs
A. can greatly reduce the gender wage gap.
B. remove the incentives for workers to train in occupations or move to those jobs where they have the largest value
of marginal product.
C. pay all unskilled workers the same wage.
D. Both (A) and (B).
E. Both (A) and (C).

Back 78

D. Both (A) and (B).

Front 79

19. From 1980 to 2005, the black-white wage ratio for males in the United States
A. held constant at about 0.7.
B. fell steadily from about 1.0 in 1980 to 0.5 in 2005.
C. increased modestly from 0.7 in 1980 to about 0.8 in 2005.
D. increased substantially from under 0.5 in 1980 to almost 1.0 in 2005.
E. increased substantially from 0.4 in 1980 to over 0.8 in 2005.

Back 79

C. increased modestly from 0.7 in 1980 to about 0.8 in 2005.

Front 80

20. When the labor force participation rate falls, the average wage in the economy is likely to increase. Why?
A. Because educated workers are those most likely to leave the labor force.
B. Because the most experienced workers are those most likely to leave the labor force.
C. Because workers who have the worst wage options are those most likely to leave the labor force.
D. Because wages don’t take into account salaried workers.
E. Because the U.S. has a negatively skewed wage distribution.

Back 80

C. Because workers who have the worst wage options are those most likely to leave the labor force.

Front 81

21. In order to maximize profits, a firm that discriminates against black labor will certainly:
A. Hire all white workers.
B. Hire all black workers.
C. Hire no workers.
D. Hire a mix of black and white workers.
E. None of the above statements are certainly true.

Back 81

E. None of the above statements are certainly true.

Front 82

22. The female-male wage gap in the United States is associated with women earning between 25 and 30 percent
less than men. By all accounts, most of this difference is attributable to
A. Differences in education levels.
B. Differences in returns to skill.
C. Discrimination.
D. Differences in labor market experience.
E. Differences in productivity.

Back 82

D. Differences in labor market experience.

Front 83

23. Consider a color-blind firm that is currently maximizing profits. An affirmative action policy is put in place
requiring that all firms abide by a certain quota. Which of the following will occur?
A. There will be no effect because the firm is currently color-blind.
B. If the quota is already met, the firm will make no changes in its hiring practices.
C. If it currently meets the required quota, the firm will cut costs by adjusting labor to exactly meet the affirmative
action requirements.
D. If the firm currently meets the quota, it will begin to lose profits due to the affirmative action requirements.
E. None of the above will occur.

Back 83

B. If the quota is already met, the firm will make no changes in its hiring practices.

Front 84

24. One possible measure of gender discrimination is to look at the difference in the average male wage and the
average female wage. This is a poor measure of discrimination for all of the following reasons except that:
A. Men and women might have different preferences when it comes to supplying labor.
B. The returns to skill may be different for men and women.
C. Men and women may differ in their overall level of skill.
D. Men and women may differ in their taste for part-time jobs.
E. Men and women may differ in their willingness to accept risky jobs

Back 84

B. The returns to skill may be different for men and women.

Front 85

25. Discrimination in the workforce
A. leads to inefficiency.
B. never leads to higher utility.
C. empirically does not exist.
D. empirically is due primarily to employees and not employers or consumers.
E. empirically is due primarily to consumers and not employers or employees.

Back 85

A. leads to inefficiency.

Front 86

26. Compared to hiring a white worker, an employer is $5 less happy when he hires a black worker and is $6 less
happy when he hires a Hispanic worker. The firm faces hourly wage rates of $20 for whites, $16 for blacks, and $14
for Hispanics. Which of the following describes the firm’s hiring decision?
A. The firm hires all white workers.
B. The firm hires all black workers.
C. The firm hires all Hispanic workers.
D. The firm hires a mixture of white and black workers.
E. The firm hires a mixture of white and Hispanic workers.

Back 86

E. The firm hires a mixture of white and Hispanic workers.

Front 87

27. There is a restaurant that employs only males to serve guests, only females to tend the bar, and a mix of male
and female cooks and dishwashers. The dishwashers and cooks never come in contact with the customers. This
hiring pattern is most indicative of
A. employer discrimination.
B. employee discrimination.
C. consumer discrimination.
D. statistical discrimination.
E. racial discrimination.

Back 87

C. consumer discrimination.

Front 88

28. Which of the following causes a difference in wages but does not necessarily qualify as discrimination?
A. Differences in schooling.
B. Differences in skills.
C. Differences in experience.
D. Differences in language.
E. All of the above lead to differences in wages but none of them necessarily qualifies as discrimination.

Back 88

E. All of the above lead to differences in wages but none of them necessarily qualifies as discrimination.

Front 89

29. The female-male wage gap in the United States
A. has been increasing over the last 30 years.
B. has been decreasing over the past 30 years.
C. is non-existent.
D. has been decreasing so much that while a raw wage gap still exists it is quite small.
E. will likely change from negative to positive over the next decade.

Back 89

B. has been decreasing over the past 30 years.

Front 90

30. The empirical and theoretical results on occupational crowding in the United States suggest what?
A. Occupational crowding is substantial in the United States, but this should not be thought of as a source of
discrimination.
B. Occupational crowding is substantial in the United States, and much of this should be thought of as a source of
discrimination.
C. Occupational crowding is substantial in the United States, but occupational crowding is unrelated to
discrimination.
D. There is minimal occupational crowding in the United States, and therefore it cannot be a source of
discrimination.
E. There is minimal occupational crowding in the United States, and this is still thought to be an important cause of
racial discrimination but not gender discrimination.

Back 90

B. Occupational crowding is substantial in the United States, and much of this should be thought of as a source of
discrimination.