Deck 5: Frictions in the Labor Market

Question 1

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.

Answer 1

B

Question 2

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.

Answer 2

C

Question 3

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.

Answer 3

D

Question 4

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.

Question 5

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 6

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 7

Employment-at-will means that

A) employees have the right to be hired for any job they desire.
B) employees have the right to be hired at any job for which they are qualified.
C) employers must have a "just reason" to fire an employee.
D) both employees and employers have the right to terminate employment at any time, for any reason.

Question 8

The present value of a firm's earnings over two periods is equal to its earnings in the initial period plus the ________ value of its earnings in the next period, and will ________ as the interest rate rises.

A) discounted; rise
B) discounted; fall
C) future; rise
D) future; fall

Question 9

After general training, the employee's wage will be

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

Question 10

Table 5.1 Two-Period Training Model

A profit-maximizing firm which wants to train its workers during the first period CANNOT (see Table 5.1 for definitions of abbreviations)

A) equate the present value of the marginal product of labor to the present value of expenditures.
B) allow WO + Z - MP1 to be greater than zero.
C) allow W1 to be greater than MPl.
D) allow Z to be greater than WO.

Question 11

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 12

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 13

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 14

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 15

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 16

Table 5.1 Two-Period Training Model

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. (See Table 5.1 for definitions of abbreviations.)

A) W*; W*
B) more than W*; more than W*
C) less than W*; less than MP1
D) more than MP*; more than MP*

Question 17

Policies which 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 18

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 19

If reserve clauses were outlawed in major-league baseball,

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.

Question 20

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 21

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 22

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 getter 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 most teachers getting similar pay.

Question 23

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 24

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 25

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 26

In Japan workers receive ________ rates of formal training than in the United States and this leads to ________ quit rates.

A) higher; lower
B) higher; higher
C) lower; lower
D) lower; higher

Question 27

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 28

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 29

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 30

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) reduce their wage.
B) reduce their employment.
C) increase their turnover rate.
D) reduce their unemployment rate.

Question 31

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 will

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

Question 32

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 33

Which of the following event 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 34

A public school currently it pays all teachers the same, regardless of their area of expertise. 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 35

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 36

It costs an employer $20,000 to train a worker. The worker, after training, is paid $50,000. During a recession, the worker's productivity falls, but then, one year later is expected to return to its original level such that the present value of future profits is $30,000. What is the lowest the worker's productivity during the year can fall to before the firm will consider firing the worker (assuming they continue to pay $50,000 a year)?

A) $20,000
B) $30,000
C) $40,000
D) $0

Question 37

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 38

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 39

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.