Deck 5: Frictions in the Labor Market

Question 1

A profit-maximizing firm that wants to train its workers CANNOT

A) equate the marginal revenue product of labor to the value of expenditures on labor over time.
B) allow worker marginal revenue product in the post-training period to exceed the wage paid in the post-training period.
C) allow the wage in the post-training period to be equal to or greater than the worker's post-training marginal revenue product.
D) allow the cost of training to exceed worker marginal revenue product during the training period.

Answer 1

C

Question 2

A reserve clause binds a professional athlete to a sports franchise even if the player does not have a contract with the team that retains the rights to the player.In other words,the player can only play for a single team and other teams may not bid for the player's services even in the absence of a contract.Major League Baseball was forced to outlaw reserve clauses in 1975.As a result of the ban,we would expect that

A) major league teams would have less incentive to train minor league players.
B) minor league players would be paid more.
C) players in the major leagues would be paid less than their marginal product.
D) players in the major leagues would be paid more than their marginal product.

Answer 2

A

Question 3

Workers with firm-specific training are ________ likely to be laid off than are workers with general training because ________.

A) more; they are paid less than workers with general training
B) more; their wage is less than their marginal product
C) less; they are paid less than workers with general training
D) less; their wage is less than their marginal product

Answer 3

D

Question 4

If a firm offers specific training to its workers,when the training is over,

A) workers will most likely be paid a wage that is equal to their marginal product.
B) workers will most likely be paid a wage that is greater than their marginal product, to compensate for the training.
C) workers will most likely be paid a wage that is less than their marginal product.
D) workers will most likely be paid a wage that is less than their wage before training.

Question 5

Use of temporary-help agencies

A) increases employees' costs associated with searching for and applying for available temporary openings.
B) increases the quasi-fixed costs of hiring temporary workers.
C) is more common when firms can build up inventories.
D) requires employers to pay more per hour than if they hired the worker directly.

Question 6

Employment protection policies adopted in many European countries tend to

A) increase job creation.
B) increase layoffs and increase job creation.
C) reduce layoffs and increase job creation.
D) reduce layoffs and reduce job creation.

Question 7

Legislation requiring employer-provided health insurance for part-time workers would probably ________ the employment of part-time workers and ________ the overtime of full-time workers.

A) increase; increase
B) increase; decrease
C) decrease; increase
D) decrease; decrease

Question 8

A quasi-fixed cost of labor is a cost that

A) is expected to change over time.
B) is proportional to the number of hours worked.
C) is proportional to the number of workers hired.
D) is proportional to the amount of capital used.

Question 9

If a worker incurs the entire cost of general training,and if mobility costs are low,then we would expect that the employee's wage will be

A) equal to his or her marginal revenue product of labor.
B) greater than his or her marginal revenue product of labor, due to the training received.
C) less than his or her marginal revenue product of labor, to pay for the cost of the training received.
D) either greater or less than his or her marginal revenue product of labor.

Question 10

General training is usually paid for by

A) the employer.
B) the employee.
C) both the employer and the employee.
D) neither the employer nor the employee.

Question 11

During a recession,average labor productivity tends to decrease because output falls and

A) prices also fall.
B) workers with specific training are not laid off.
C) workers with general training are not laid off.
D) neither workers with general training nor workers with firm-specific training are laid off.

Question 12

Specific training is paid for by

A) the employer.
B) the employee.
C) both the employer and the employee.
D) neither the employer nor the employee.

Question 13

A firm could profitably pay for a worker's general training if

A) the worker could change jobs easily.
B) the worker was nearing retirement.
C) the training program would also serve as a screening device.
D) the training increased the quasi-fixed costs of hiring the worker.

Question 14

An increase in quasi-fixed costs would probably lead to a(n)________ in the number of employees hired and a(n)________ in the number of overtime hours worked.

A) increase; decrease
B) increase; increase
C) decrease; decrease
D) decrease; increase

Question 15

Policies that protect workers against "unjust dismissal" have been shown to cause

A) decreased employment levels and increased hour fluctuations.
B) increased employment levels and decreased hour fluctuations.
C) increased employment levels and increased hour fluctuations.
D) decreased employment levels and decreased hour fluctuations.

Question 16

A mandated increase in overtime pay is likely to

A) cause employers to reduce overtime hours and convert them into added employment.
B) directly reduce the quasi-fixed costs per worker.
C) lead to a reduction in employment if higher costs cause a large scale effect.
D) lead to a reduction in employment if those who work overtime and those who are unemployed are perfect substitutes.

Question 17

Which of the following is definitely NOT a quasi-fixed cost of labor?

A) unemployment insurance
B) health insurance
C) overtime pay
D) vacation pay

Question 18

Suppose that mobility costs incurred by workers are low.In this circumstance,the best way to provide incentives for on-the-job training is for

A) employees to bear all of the costs of the investment.
B) employers and employees to share the costs of the investment.
C) employers to force workers to accept a below market wage during the training period.
D) employers to bear all of the costs of the investment.

Question 19

A mandated increase in overtime pay is likely to

A) raise the average costs of labor, even if all overtime hours were eliminated.
B) cause an increase in labor hours due to the scale effect.
C) cause employers to increase straight-time hourly wages to compensate (because of the "package" agreed upon).
D) cause an increase in labor hours due to the substitution effect.

Question 20

A profit-maximizing firm which wants to provide firm-specific training to its workers will pay ________ in the training period and ________ after training is completed.

A) the market wage for single period jobs; the market wage for single period jobs
B) more than the market wage for single period jobs; more than the market wage for single period jobs
C) less than the market wage for single period jobs; less than the post-training marginal revenue product
D) more than the worker's marginal revenue product in other jobs; more than the worker's marginal revenue product in other jobs

Question 21

Regardless of area of expertise,a public school pays all teachers the same annual wage.At $70,000,it hires good teachers in all areas except science.Because science is a field in demand,the school can only hire poor science teachers.It would have to pay science teachers $90,000 to hire good science teachers.If one out of five teachers is a science teacher,what is the marginal expense of getting a good science teacher instead of a poor one?

A) $90,000
B) $100,000
C) $20,000
D) $450,000

Question 22

Two employers,A and B,pay the same wage but Employer A faces a more inelastic supply curve of labor than Employer B.Both firms are monopsonies but have similar outputs and technologies.Other things being the same,then in the long run

A) Employer A will employ less capital than Employer B.
B) Employer A will employ more capital than Employer B.
C) Both employers will employ the same amount of capital.
D) Both firms, in the long run, will pay a wage equal to their marginal revenue product.

Question 23

If workers share in the cost of training but also share in the productivity payoff from the training,then we expect that

A) quit rates will be lower.
B) quit rates will be higher.
C) layoff rates will be higher.
D) employers would have no incentive to hire such workers in the first place.

Question 24

Workers that are least susceptible to layoffs during a recession are ________ and those with ________.

A) the most skilled; the longest job tenure
B) the least skilled; the least job tenure
C) the most skilled; the least job tenure
D) the least skilled; the most job tenure

Question 25

Most colleges pay teachers different salaries in different fields.For example,they usually pay science teachers more than English teachers.Public schools pay teachers in different fields the same.As a result,in public schools,if they want to get better science teachers,they have to raise everyone's wage.Which of the following is a consequence of paying teachers different salaries,as they do in colleges?

A) It raises the cost of hiring a higher quality of teachers.
B) It reduces the cost of getting good teachers in the areas that are in high demand.
C) It results in relatively fewer good teachers being hired in areas of high demand.
D) It results in most teachers getting similar pay.

Question 26

Members of certain groups have the right to sue employers if discriminated against.Other things the same,then according to the model of quasi-fixed costs,this right will tend to

A) increase the wage rate of the group.
B) reduce the employment of the group.
C) increase the turnover rate of the group.
D) reduce the unemployment rate of the group.

Question 27

A monopsony's marginal worker has a marginal revenue product of $12 an hour and a wage of $8.A minimum wage of $10 will have which of these effects?

A) decrease the average hourly cost of a worker
B) decrease the marginal hourly cost of a worker
C) increase the marginal revenue product of the marginal worker
D) increase the firm's average profit per worker

Question 28

Two employers pay a wage of $10 an hour.Employer A is a monopsony while Employer B hires in a competitive labor market.Both firms sell their output in competitive markets.Which of the following will be true?

A) The marginal worker in both firms will add the same to the firm's revenue.
B) If a worker left employer A and joined employer B, the economy would be better off.
C) Employer A has a higher average wage cost per worker than Employer B.
D) It will cost employer A more to hire another worker.

Question 29

A monopsony can hire one worker at a wage of $5,two workers at a wage of $6 each,three workers at $7 each,and so on (each added worker adding one dollar to the wage rate).If the marginal revenue product for all workers is $16,what wage will it pay?

A) $10
B) $11
C) $16
D) $17

Question 30

A firm employs 10 workers at a weekly wage of $500.If it employs an eleventh worker,it has to raise all of its workers wage to $520.The eleventh worker adds $750 a week to revenues.If the firm hires the eleventh worker,its weekly profits will

A) go up by $230.
B) go up by $30.
C) go up by $23.
D) go down by $270.

Question 31

The use of an internal labor market implies that

A) workers in lower-level jobs will become less motivated and less dependable.
B) workers at the firm have no firm-specific training.
C) most upper-level jobs will be filled by promoting current workers.
D) the firm relies exclusively on credentials.

Question 32

What is meant by the term monopsony? Under what circumstances do monopsonistic conditions arise in the labor market?

Question 33

When a firm hires a fourth worker,its wage rate goes from $80 a worker to $90.The marginal revenue product of the fourth worker is $100.If the firm hires the fourth worker,its profits

A) will increase by $10.
B) will increase by $20.
C) will decrease by $10.
D) will decrease by $20.

Question 34

A firm is currently employing 10 workers.To hire an 11th worker,it must raise its weekly pay by $5 and pay the 11th worker $100.What is the marginal expense of the hiring the 11th worker?

A) $100
B) $150
C) $105
D) $5

Question 35

Which of the following events will likely lead a firm to use overtime rather than hire new workers?

A) The firm gets rid of its pension plan.
B) The firm starts to pay for health insurance.
C) The marginal productivity of all workers, new and current, increases 20%.
D) Both overtime and base pay increase 20%.

Question 36

Initially,when a firm hires a fourth worker,its wage rate goes from $80 a worker to $90.The marginal revenue product of the fourth worker is $100.Then the government imposes a minimum wage of $90 a worker.If the firm now hires the fourth worker,its profits

A) will increase by $10.
B) will increase by $20.
C) will decrease by $10.
D) will decrease by $20.

Question 37

Training costs

A) exclude opportunity costs of trainees' time.
B) arise mostly from out-of-classroom training.
C) exclude the opportunity cost of using capital equipment.
D) exclude opportunity costs of trainers' time.

Question 38

Statistical discrimination is

A) using statistics to judge the average characteristics of a group of workers.
B) judging one person according to a group to which he or she belongs.
C) using statistics in hiring.
D) firing people due to low average productivity.

Question 39

The marginal product of a new worker is 80 units and the marginal expense of a new worker is $800.The marginal product of hiring current workers another hour is 10 units and the marginal expense of hiring current workers another hour is $12.If the firm needs extra hours of work (assuming the work could be done by either the new or current workers),it should

A) hire new workers.
B) hire current workers more hours.
C) be indifferent between hiring new workers or hiring current workers more hours.
D) not hire anyone for the added hours of work.

Question 40

All else equal,a firm will prefer to hire a worker who will

A) stay at the firm for a long period of time.
B) stay at the firm for a short period of time.
C) be willing to work only a limited number of hours.
D) acquire firm-specific training from another firm.

Question 41

Explain what is meant by the term quasi-fixed cost of employment.Give some examples of quasi-fixed costs of employment.

Question 42

What is an internal labor market? What types of firms are most likely to rely on an internal labor market? Explain.

Question 43

"An employer will not invest in general training for its employees." Agree or disagree with the statement and justify your response.

Question 44

Suppose that a monopsonist employs 100 workers at a wage of $15 per hour.Assume that the monopsonist has maximized profit and that the marginal revenue product is $20 per hour at the current employment level.Explain how imposition of a minimum wage in this setting could increase employment at the firm.Illustrate your discussion with an appropriate graph.What is the highest minimum wage that could be imposed without loss of employment? Explain and illustrate graphically.

Question 45

A firm employs M workers per week and the length of the workweek at the firm is H hours.Let MP_M be the added output from an additional employee and let MP_H be the added output from a one hour increase in the workweek at the firm.MEM and ME_H are,respectively,the marginal expense of an added worker and of an added hour of work.At present,the cost of an added unit of output produced by hiring more workers is $5 while the cost of an added unit of output produced by employing existing workers for more hours is $3.Is the firm maximizing profits given its current employment level and workweek? If your answer is yes,explain why.If your answer is no,explain why not and discuss what adjustments the firm should make.

Question 46

Approximately what percentage of male skilled craft workers and technicians work regularly scheduled overtime? Given the overtime pay premium,why would an employer have workers work regularly scheduled overtime rather than simply hire more workers and thus avoid the overtime pay premium?

Question 47

Is an employer's unemployment insurance payroll-tax liability a quasi-fixed cost of employment? Why or why not?

Question 48

Under what conditions would an employer invest in training its employees? Explain.

Question 49

Discuss how the use of credentials in the hiring process can represent an efficient investment by the firm.

Question 50

What is the overtime pay premium? Discuss its origin and who it covers.