Deck 10: Wage Structures Across Markets

Question 1

Why might one expect the public sector to pay lower wages, ceteris paribus, than the private sector?

A) Public sector workers tend to have a higher degree of job security.
B) The skills and education levels of these workers is lower than that of their private sector counterparts.
C) The demand for labour in the public sector is often quite wage inelastic.
D) Public sector workers are less heavily unionized than their private sector counterparts.
E) Public sector workers have less fringe benefits than their private sector counterparts.

Answer 1

A

Question 2

The economic benefits of migration include all of the following except:

A) better expected availability of social services.
B) less expected variability of income.
C) better expected employment opportunities.
D) expected income gains.
E) None of the choices are correct, as they all apply.

Answer 2

E

Question 3

Which of the following regarding Roy's model of earning determination is NOT correct?

A) Wages are perfectly equalized across sectors, as workers with different skills choose the sector in which they earn more than in any other job.
B) People choose their occupation (or type of job or employer) on the basis of comparative advantage.
C) Comparative advantage results in a selection bias since workers with different sets of observed and unobserved skills tend to sort themselves into different jobs or occupations.
D) A market clearing equilibrium holds because no worker would prefer to switch to a different kind of job in equilibrium.
E) Most workers earn rents in equilibrium in the sense that the wage in the job they choose is higher than what they would get in other jobs.

Answer 3

A

Question 4

Ceteris paribus, workers would tend to engage in more job mobility because of their _.

A) older; shorter benefit period
B) younger; longer benefit period
C) older; longer benefit period
D) younger; shorter benefit period
E) None of the choices are correct.

Question 5

What is the role of short-run adjustments in determining the wage structure?

A) They support the neoclassical theory of labour market equilibrium.
B) They can explain the existence of wage differentials across regions, industries, or occupations even if the labour market is very competitive.
C) They are the primary factor generating the public sector/private sector wage differential.
D) They are necessary in order to efficiency wage differentials to exist.
E) They are closely linked to the firm size effect on wages.

Question 6

Keeping other factors constant, which of the following statements concerning migration behaviour is false?

A) Migration is more likely to occur out of higher unemployment areas.
B) Migration is more likely to occur during recoveries than during recessions.
C) Migration is more likely to be observed when the distances are long.
D) Migration is less likely to occur from Quebec than from other provinces.
E) Younger workers are expected to migrate more than older workers.

Question 7

Which of the following statements regarding the political constraint in the public sector is false?

A) The political constraint replaces the profit constraint facing private sector employers.
B) Tax revenues continue to flow in even if the services are not provided in the event of a strike.
C) Public sector employers typically do not have to pay the going wage.
D) Future taxpayers have little representation in the current political process, and can be saddled with public debt.
E) The public sector employer can compel payment for the services that its workers provide.

Question 8

Interfirm wage differentials could stem from all of the following except:

A) short run demand changes.
B) persistent supply and demand imbalances.
C) non-competitive factors operating in markets.
D) non-pecuniary differences in the nature of jobs.
E) None of the choices are correct.

Question 9

Consider an earnings function. In addition to the usual explanatory variables of experience and schooling, one can include variables for reflecting all of the following factors except:

A) occupational premiums.
B) unobserved heterogeneity
C) industry premiums.
D) family background.
E) regional premiums.

Question 10

In the mid-to-late 2000s, a regional wage premium developed within the Canadian labour market. Which of the following statements is false?

A) In the long run, one expected the wage premium to dissipate through regional migration.
B) The wage premium was related to the situations in the manufacturing sector and the energy sectors of the Canadian economy.
C) The demand for labour expanded more in Alberta than in Ontario.
D) The supply of labour contracted in Alberta, helping to push up the wage.
E) Wages rose in Alberta relative to Ontario

Question 11

The political constraint facing the public sector is less binding than the profit constraint facing the private sector because:

A) All services that the public sector provides are indispensable.
B) Public sector managers can escape accountability for their management decisions.
C) Taxpayers are often well-informed about the public debt.
D) Tax revenues continue to flow in even if the services are not provided in the event of a strike.
E) Future taxpayers have little representation in the current political process, and can be saddled with public debt.

Question 12

Which of the following statements is true? An earnings function is:

A) a function relating an individual's earnings to his/her level of professional training in the particular field.
B) a function relating an individual's earnings to his/her characteristics that determine productivity.
C) a function relating an individual's earnings to his/her family background.
D) a function relating an individual's earnings to his/her professional background.
E) a function relating an individual's earnings to his/her ability.

Question 13

The empirical literature on the public sector/private sector wage premium has shown that:

A) Workers in the public sector have lower earnings than workers in the private sector.
B) Workers in the public sector have earnings equal to workers in the private sector.
C) Workers in the public sector have lesser endowments of wage determining factors such as education.
D) The public sector premium, holding all other factors constant, is higher for skilled and educated workers than it is for lesser skilled workers.

Question 14

Suppose that a wage premium is paid to workers throughout the occupational spectrum of an industry - the secretaries, blue-collar workers, and the white-collar workers. This could be constrained as evidence of the existence of:

A) a labour intensive industry
B) compensating differentials
C) high human capital requirements
D) non-competitive factors associated with the industry
E) discriminations

Question 15

Basic economic theory suggests that in the long-run, competitive forces should eliminate pure inter-industry wage differences. If these differences exist, it could be explained by all of the following except:

A) interindustrial migration of workers
B) rent sharing between labour and capital
C) non-pecuniary characteristics of an industry
D) efficiency wages
E) non-competitive factors

Question 16

Occupational premiums refer to:

A) the rate of return on human capital investment as measured across occupations.
B) the percentage differences in earnings associated with a certain occupation relative to other occupations.
C) the percentage differences in earnings associated with working the most highly paid occupation.
D) rents accruing to workers who benefit from imperfect competition in the labour market.
E) the percentage differences in earnings associated with working the most common occupation.

Question 17

Which of the following statements is true? Efficiency wages:

A) are wages below the market equilibrium wage.
B) refer to wages at the level of a competitive equilibrium.
C) are generated by the intersection of labour supply and labour demand.
D) clear the labour market as there is no unemployment.
E) constitute rents to the workers who receive them.

Question 18

Average interindustry wage differentials reflect all of the following except:

A) wage structures by region.
B) wage structures by characteristics of the labour force.
C) wage structures by public sector versus private sector.
D) wage structures across occupations.
E) None of the choices are correct.

Question 19

According to basic economic theory, how can one assess whether workers in a certain industry are overpaid?

A) By comparing the desirability or the undesirability of their working conditions with those of other workers.
B) By comparing their wages to wage norms in other industries
C) By comparing the educational attainment of the labour force with that of other workers
D) By surveying the workers and asking them whether they think that their wages are too high
E) By the existence of long queues of qualified workers whenever there are vacancies, and witnessing few quits

Question 20

The public sector is subject to various peculiarities which include all of the following except:

A) monopsony situations.
B) a profitability constraint.
C) inelastic demand for labour.
D) political constraints.
E) a high degree of unionization.

Question 21

Which of the following theories regarding wage determination is most likely to be used as an argument in favour of industrial policy?

A) The unobserved heterogeneity principle
B) The compensating differentials approach (non pecuniary benefits)
C) The efficiency wage approach
D) The political versus profit constraint principle
E) The non-competitive market approach

Question 22

Which of the following statements concerning efficiency wages is false?

A) Efficiency wage premiums are obtained through union power.
B) The efficiency wage is greater than the competitive, market clearing wage.
C) An efficiency wage is designed to incite more efficient labour from the worker.
D) Efficiency wage premiums are paid voluntarily by employers without pressure from the workers.
E) Efficiency wages are sometimes used to support industrial policies

Question 23

Which of the following statements concerning migration behaviour is false?

A) It is more likely to occur when the wage gains are expected to be high.
B) It is affected by the availability of information on wages and employment conditions.
C) It is dampened by imperfect capital markets which make it difficult for many individuals to finance a move.
D) It is modeled as a marginal cost and marginal benefit decision.
E) In the long run, it will generally erase inter-regional disparities in wages.

Question 24

The phenomena of deregulation and globalization is most likely to impact:

A) inter-firm wage differentials.
B) inter-regional wage differentials.
C) inter-industry wage differentials.
D) inter-occupational wage differentials.
E) public/private differentials.

Question 25

Congratulations! You have just been appointed chair of the pay equity commission, but this is not like the conventional commission which is concerned with the relative pay levels of women and visibility minorities. Your mandate is to analyze pay premia across occupations, industries, regions, as well as the public sector/private sector premium.
• How does one typically argue that a certain group of workers is receiving a wage premium? Wha serves as the frame of reference, or point of comparison, for such an evaluation? In other words, "overpaid" compared to what?
• Explain the theoretical causes of wage premia. In particular, identify each of the following economic factors, and explain how each could give rise to wage differentials. In each case, give a concrete illustration pertaining to a wage premium across one of the dimensions listed in the paragra above.
- non-competitive factors, such as efficiency wages
- compensating differentials
- immobility of labour across markets
- short-run transitory disequilibria across markets
• Without giving any technical details, what is the fundamental empirical challenge in asserting tha worker A receives a wage premium compared to worker B?