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Final exam
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1. “Total compensation” includes:
a. Wages and salaries and all fringe benefits
b. Wages and salaries and public (legally mandated) fringe benefits only
c. Wages and salaries and private (nonmandatory) fringe benefits only
d. Wages and salaries and all fringe benefits net of all personal taxes
2. Fringe benefits currently account for approximately what percentage of total compensation?
a. 5% – 10% c. 25% – 30%
b. 15% – 20% d. 35% – 40%
3. As a percentage of benefits, the largest share goes to:
a. retirement and savings c. paid leave
b. insurance d. legally required benefits
4. The proportion of total compensation paid out as fringe benefits tends to be larger in:
a. high-paid industries compared to low-paid industries
b. service industries compared to manufacturing industries
c. white-collar occupations compared to blue-collar occupations
d. retail trade compared to transportation and public utilities
5. Which one of the following is not a valid explanation for why workers may prefer an extra dollar’s worth of fringe benefits to an extra dollar’s worth of cash?
a. workers may prefer to bind themselves against their own tendencies toward immediate gratification
b. certain fringe benefits effectively trade current taxes for future taxes
c. people generally prefer in-kind benefits to cash
d. certain fringe benefits are untaxed
6. The trend of fringe benefits as a percentage of total compensation can be partially explained by the fact that:
a. tax reform has rendered many types of fringe benefits fully taxable
b. “in-kind” benefits restrict workers’ consumption choices
c. the firm may be able to purchase fringe benefits more cheaply than workers
d. many types of fringe benefits are income inelastic
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7. Which of the following is not a cause of fringe benefit growth?
a. Tax advantages to the employer
b. Efficiency considerations
c. Economies of scale
d. Fringe benefits are income inelastic
8. The principal-agent problem arises primarily because:
a. principals and agents work in a team, leading to free-rider problems
b. principals and agents have common interests
c. principals pursue some of their own objectives that may conflict with the objectives of the agents
d. agents pursue some of their own objectives that may conflict with the objectives of the principals
9. Which one of the following best represents the principal-agent problem in the employer-employee relationship?
a. An employee works during a paid lunch hour in order to leave work one hour early
b. An employer fails to provide safety goggles to a worker as required by occupational safety and health legislation
c. a worker leaves work early without permission
d. A worker opts for early retirement in response to the firm’s incentive plan
10. Compensation paid in proportion to the value of sales best describes:
a. piece rates c. time rates
b. commissions d. bonuses
11. Which of the following best exemplifies a piece-rate compensation scheme?
a. Jose’s pay is proportional to the number of wiring harnesses he assembles each day
b. Carla’s pay is proportional to the value of her sales at the dress shop each month
c. Stan’s pay is proportional to the number of his textbooks sold each year
d. Louise’s pay is proportional to the number of hours she works each month
12. Royalties would most likely be received by a(n):
a. art dealer c. used car dealer
b. factory worker d. author
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13. For employers, the chief advantage of royalties and commissions is that these pay policies:
a. promote teamwork and cooperation
b. increase turnover
c. reduce shirking where work effort is costly to observe
d. reduce income variability
14. Raises and promotions are used by employers as a device to:
a. reduce shirking by salaried workers
b. transform labor from a quasi-fixed to a variable resource
c. reduce turnover by hourly workers
d. reduce free-riding by teams of workers
15. The effectiveness of profit-sharing plans may be diminished because:
a. potential free-rider problems render such plans ineffective in all but the largest firms
b. profit-sharing is a type of deferred payment scheme
c. the plans are tied to group performance, so the link between profit-sharing and worker productivity is not always clear-cut
d. there is no means by which greater work effort can be translated into greater compensation for a worker
16. Team bonuses:
a. solve the free-rider problem associated with individual bonuses
b. create a principal-agent problem by channeling effort toward team performance at the expense of individual performance
c. typically comprise a large percentage of the total compensation of middle managers, but almost none of the total pay of top executives
d. work best when targeted at relatively small groups of employees
17. In some instances, profit sharing may not be a very effective tool for raising worker productivity because of the:
a. free-rider problem
b. principal-agent problem
c. retirement problem
d. tax and accounting rules that cause economic profit to differ from accounting profit
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18. A stock option will have value to a worker if:
a. the firm’s stock price is expected to rise
b. the firm’s stock price is expected to fall
c. the “grant price” of the stock is expected to exceed its market price
d. none of the above
19. A firm might choose to pay its employees a wage higher than that which would clear the market because:
a. the higher wage raises the opportunity cost of shirking
b. the higher wage may shift the labor demand curve to the left
c. the firm will have higher turnover, allowing new workers to invigorate the work place
d. the higher wage solves the free-rider problem
20. Linda quit her job as a loan officer at First Detroit State Bank to accept a similar position at First Minneapolis Savings Bank. This is an example of:
a. geographic mobility c. horizontal mobility
b. occupational mobility d. vertical mobility
21. Sam left his job as an auto mechanic to accept a position in his local Sears store as an auto parts salesman. This is an example of:
a. geographic mobility c. horizontal mobility
b. occupational mobility d. vertical mobility
22. If an economics professor moves from the University of California at Berkeley to the University of Texas at Austin, that is an example of:
a. job change/no change in residence
b. occupational change/no change in residence
c. geographic change/no change in occupation
d. geographic change/change in occupation
23. Because migration typically involves present sacrifice in order to obtain a greater stream of future earnings, many economists consider migration to be:
a. an investment in human capital
b. undertaken only by those who have very low discount rates
c. motivated strictly by monetary considerations
d. an impediment to economic efficiency
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24. “Any worker for whom the present value of lifetime earnings will increase by migration will
choose to move.” This statement is:
a. true
b. false; migration depends on undiscounted earnings gains
c. false; there may be psychic costs of moving that deter migration
d. false; empirical evidence indicates that migration decisions have little to do with financial gains
or losses
25. In the equation for the net present value of migration, Z
i
C
i
E E
V
N
n
n
N
n
p n 




 
1 1
2 1
(1 ) (1 )
, the
term “C” refers to:
a. the net psychic costs of moving
b. the direct and indirect monetary costs of moving
c. earnings from the new job
d. the discount rate
26. All else equal, a worker is less likely to move:
a. the smaller the wage differential between the destination and the origin
b. the lower the discount rate
c. the greater the number of years one expects to remain in the new location
d. the lower the indirect costs of migrating
27. All else equal, a worker is more likely to move if:
a. his or her spouse is also a labor force participant
b. there are school-age children in the family
c. his or her spouse has accumulated very little job tenure
d. he or she is married
28. All else equal, a worker is less likely to move:
a. if the worker has moved before
b. the greater the amount of specific training the worker has
c. the greater the worker’s educational attainment
d. the shorter the distance moved
29. All else equal, a worker is more likely to move:
a. the smaller the wage differential between the destination and the origin
b. the greater the direct costs of moving
c. the larger the worker’s family size
d. the lower the discount rate
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30. All else equal, a worker is less likely to move:
a. if he or she has moved before
b. the more unionized the worker’s occupation
c. the greater the worker’s educational attainment
d. if the worker is single
Final exam
Answer questions 31 – 34 on the basis of the following diagram. Assume all migration is costless.
31. If there are initially 1000 workers in country X and 500 workers in country Y, then we should expect:
a. net migration from country X to country Y
b. net migration from country Y to country X
c. There will be no migration of workers
d. A migration pattern cannot be determined from the information
32. Assume there are initially 1000 workers in country X and 500 workers in country Y. As workers begin to migrate, the total value of output will:
a. increase in country X and decrease in country Y; the combined total will increase
b. increase in country X and decrease in country Y; the combined total will decrease
c. increase in country X and decrease in country Y; the combined total will not change
d. not change in either country
33. If wages are initially $10 in country X and $25 in country Y, then we should expect higher rates of capital investment in:
a. X relative to Y, eventually resulting in increased labor demand in X
b. X relative to Y, eventually resulting in reduced labor demand in X
c. Y relative to X, eventually resulting in increased labor demand in X
d. Y relative to X, eventually resulting in reduced labor demand in X
Wage
Labor
VMPX
25
Wage
Labor
VMPY
25
Market X
Market Y
10
10
1000
1500
250
500
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34. If wages are initially $10 in country X and $25 in country Y, then we should expect a relative price advantage in country:
a. X, eventually resulting in greater export sales to Y and thus greater derived demand for labor in X
b. Y, eventually resulting in greater export sales to X and thus greater derived demand for labor in Y
c. X, eventually resulting in greater imports from Y thus greater derived demand for labor in X
d. Y, eventually resulting in greater imports from X and thus greater derived demand for labor in Y
35. Approximately what percentage of U.S. workers were union members in 2011?
a. 6% b. 11% c. 22% d. 31%
36. White-collar workers:
a. are just as likely as blue-collar workers to be union members
b. are less likely to unionize because unionization may be an obstacle to their ambitions
c. are more likely to unionize because the potential gains from unionization are larger
d. are exempt from most labor legislation
37. Women are much less likely to be union members than men. This is:
a. because women are more likely to be in less-unionized industries and occupations
b. because women have fundamentally different attitudes about unions
c. because unions are legally allowed to discriminate against women
d. not true
38. In which industry is the relatively high extent of unionism and union membership growth explained by the favorable legislative climate of the 1960s and 1970s?
a. Finance, insurance and real estate
b. Wholesale and retail trade
c. Transportation, communication and public utilities
d. Public Administration
39. Economists typically believe that the goal of a union is to:
a. maximize the total employment of its members
b. maximize the total wage income of its members
c. bargain for the highest wage possible
d. increase both the wages and employment of its members
40. A union might attempt to raise both the wage rate and employment of its members by:
a. lobbying for state licensing requirements for union jobs
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b. arguing for easing of immigration restrictions
c. increasing the demand for the good or service that the union produces
d. attempting to raise the price of complementary inputs
41. A union will most likely attempt to restrict the growth of labor supply if:
a. the labor supply curve is very inelastic
b. the labor demand curve is very inelastic
c. there is a very slow rate of growth of labor demand
d. there is a very elastic supply of a production substitute for union labor
42. Which of the following actions might a union use to try to restrict the growth of labor supply?
a. Increase product demand
b. Reduce the number of qualified workers
c. Enhance worker productivity
d. Reduce the wage for nonunion labor
43. In response to declines in membership, unions have recently:
a. avoided labor organization mergers
b. intensified attempts to organize blue-collar workers as opposed to white-collar workers
c. given increased priority to wage increases and put less emphasis on non-wage issues
d. substituted work slowdowns for strikes as a way of preventing replacement by permanent strikebreakers
44. Negotiating a contract with a group of firms in an industry is an example of:
a. pattern bargaining c. persuasive bargaining
b. collective bargaining d. multiemployer bargaining
45. Which of the following best describes the growth of public-sector employment since 1950? As a percentage of total employment:
a. state and local employment have fallen, but federal employment has risen sufficiently to cause overall public-sector employment to rise
b. both federal and state and local employment have grown
c. public-sector employment has fallen, but the absolute level has grown
d. federal employment has fallen, but state and local employment have risen sufficiently to cause overall public-sector employment to rise
46. As a percent of total employment, government employment in the U.S. is currently about:
a. 4% b. 16% c. 22% d. 34%
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47. In the public sector:
a. workers tend to receive more of their total compensation in the form of fringe benefits than their private-sector counterparts
b. workers tend to receive less of their total compensation in the form of fringe benefits than their private-sector counterparts
c. overall wage dispersion is much greater than in the private sector
d. quit rates are higher than in the private sector
48. Compared to their private-sector counterparts, government workers:
a. have greater labor turnover
b. have lower quit rates
c. have higher and more variable rates of unemployment
d. receive a smaller percentage of their compensation in the form of fringe benefits
49. Consider the effects of a government transfer payment that falls as income rises (such as food stamps). Economic theory predicts that:
a. work effort falls because the substitution effect outweighs the income effect
b. both the income and substitution effects tend to reduce work effort
c. work effort rises because the substitution effect outweighs the income effect
d. work effort falls because the income and substitution effects offset each other
50. Suppose the federal government builds a new flood control project that takes thousands of acres of land out of agricultural production. Which of the following is most likely to occur as a result?
a. The demand for fertilizer will rise, thereby increasing employment in that industry
b. Wages and employment of workers who build farm equipment will rise
c. The demand for farm workers will increase
d. The wages of farm workers will decline
51. Suppose income tax rates are reduced. As a result, Smith works more hours per week while Jones works fewer hours per week. We can conclude that:
a. Smith and Jones are in different tax brackets
b. for Smith, the substitution effect exceeds the income effect; the opposite is true for Jones
c. for Jones, the substitution effect exceeds the income effect; the opposite is true for Smith
d. Jones conforms to the economic model of labor supply but Smith does not
52. Prior to the 1930s, union membership growth was relatively:
a. slow, due to the use of blacklisting, injunctions, and yellow dog contracts
b. slow, due to the widespread use of lockouts and strikebreakers authorized under the Norris-LaGuardia act
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c. rapid, due to the favorable court treatment of union activity provided by passage of the Sherman Act of 1890
d. rapid, due to favorable court interpretations concerning workers’ property rights
53. A court order to prevent actions such as picketing, striking, and boycotting is called a(n):
a. yellow-dog contract c. lockout
b. blacklist d. injunction
54. Of the following laws, which one contributed most to union membership?
a. Landrum-Griffin Act c. Sherman Act
b. Norris-LaGuardia Act d. Taft-Hartley Act
55. Which one of the following laws most dramatically increased union bargaining power?
a. Sherman Act c. Taft-Hartley Act
b. Wagner Act d. Landrum-Griffin Act
56. The prohibition of secondary boycotts:
a. reduced management’s bargaining power by reducing the union’s cost of disagreeing
b. reduced management’s bargaining power by reducing management’s cost of disagreeing
c. increased management’s bargaining power by increasing the union’s cost of disagreeing
d. increased management’s bargaining power by increasing management’s cost of disagreeing
57. Which of the following increased management’s bargaining power?
a. Limiting the use of injunctions to enjoin a strike
b. Limiting the use of “hot-cargo” clauses
c. Limiting the use of “yellow-dog” contracts
d. Creation of the National Labor Relations Review Board
Final exam
Questions 58 and 59 refer to the diagram below, which shows a competitive low-wage labor market:
58. Consider the diagram. Suppose the government establishes a minimum wage of $7.00 in this market. Employment would decline by _____ workers and unemployment would increase by _____ workers.
a. 20, 20 b. 20, 35 c. 35, 20 d. 35, 35
59. Consider the diagram. Suppose the government establishes a minimum wage of $7.00 in this market. Which of the following is a true statement?
a. Demand is elastic over the relevant range, so that total wage income rises
b. Demand is elastic over the relevant range, so that total wage income falls
c. Demand is inelastic over the relevant range, so that total wage income rises
d. Demand is inelastic over the relevant range, so that total wage income falls
60. Firms will reduce job safety as long as:
a. potential cost savings are at least as great as wage increases that might have to be paid to attract labor into risky jobs
b. potential cost savings are less than wage increases that might have to be paid to attract labor into risky jobs
c. the marginal cost of safety is positive
d. the marginal benefit of safety to the firm is very large
61. Which of the following is given as a justification of the health and safety standards established by OSHA?
a. Workers overestimate the amount of risk associated with jobs, resulting in a larger than optimal wage premium for hazardous jobs
DL = VMP
SL
Labor
Wage
50
70
85
$6.00
$7.00
$3.00
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b. Workers underestimate the amount of risk associated with jobs, resulting in a larger than optimal wage premium for hazardous jobs
c. Firm overestimate the amount of risk associated with jobs, resulting in a smaller than optimal wage premium for hazardous jobs
d. Information and occupational mobility are imperfect, so that the wage premium for job safety provides inadequate incentive for firms to provide safety
62. Suppose this represents the market for U.S. autoworkers. If the government were to pass legislation mandating that all vehicles sold in the U.S. contain at least 50% domestically produced or assembled components, then:
a. supply would shift to the right, reducing economic rent to U.S. autoworkers
b. supply would shift to the left, reducing economic rent to U.S. autoworkers
c. demand would shift to the right, reducing economic rent to U.S. autoworkers
d. demand would shift to the right, increasing economic rent to U.S. autoworkers
63. A “domestic content” law for automobiles would increase the economic rent of workers in the U.S. automobile industry by:
a. decreasing the demand for autoworkers in the U.S.
b. decreasing the supply of U.S. autoworkers in the U.S.
c. allowing U.S. autoworkers to obtain higher wages even though employment falls in the U.S. automobile industry
d. increasing the demand for autoworkers in the U.S. and pulling up their wages
64. Which of the following would unambiguously increase the economic rent of current dental assistants?
a. Requiring all future dental assistants to get an advanced degree
b. Requiring all current and future dental assistants to get an advanced degree
c. Requiring all current dental assistants to get an advanced degree
d. Requiring all dental assistants to work under the direct supervision of a dentist
65. Suppose this represents the market for U.S. autoworkers. If the government were to pass legislation mandating that all vehicles sold in the U.S. contain at least 50% domestically produced or assembled components, then:
a. supply would shift to the right, reducing economic rent to U.S. autoworkers
b. supply would shift to the left, reducing economic rent to U.S. autoworkers
c. demand would shift to the right, reducing economic rent to U.S. autoworkers
d. demand would shift to the right, increasing economic rent to U.S. autoworkers
66. Discrimination in the form of access barriers to productivity-increasing opportunities is termed:
a. wage discrimination c. occupational discrimination
b. employment discrimination d. human capital discrimination
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67. Discrimination that results in the payment of a lower wage rate to a female relative to an equally productive male is termed:
a. wage discrimination c. occupational discrimination
b. employment discrimination d. human capital discrimination
68. If an African American woman is paid a lower wage than a similarly qualified and experienced white man performing the same job at the same firm, then this is an example of:
a. wage discrimination c. occupational discrimination
b. employment discrimination d. human capital discrimination
69. Discrimination that segregates qualified women into lower paying jobs is called:
a. wage discrimination c. occupational discrimination
b. employment discrimination d. human capital discrimination
70. Which of the following exemplifies occupational discrimination?
a. 97% of all secretaries are women
b. women secretaries make, on average, 40% of their boss’ pay while male secretaries average 50% of their boss’ pay
c. women secretaries average 12 years of education and obtain little on-the-job training; male secretaries average 12.5 years of education and usually qualify for advanced training programs
d. the unemployment rate for women secretaries is typically 2% higher than that for male secretaries
71. An employer who is willing to pay a wage premium to avoid employing persons from some particular group is engaging in:
a. a taste for discrimination c. statistical discrimination
b. occupational segregation d. human capital discrimination
72. Statistical discrimination is:
a. he use of some observable characteristic by employers as a screening device in the hiring process
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b. comparing the marginal productivities of job applicants to determine who is most suitable for the job
c. not based on accumulated factual evidence about different groups
d. malicious treatment aimed at persons with observable demographic characteristics
73. According to the theory of statistical discrimination:
a. the process of competition should put discriminating employers at a competitive disadvantage
b. the discrimination coefficient is a measure of prejudice in the labor market
c. there will be discriminatory wage differentials because a firm with market power distinguishes between different groups with different elasticities of labor supply
d. a person is judged on the basis of the average characteristics of her or his demographic group
74. The inefficiencies of occupational segregation by gender arise because:
a. women are paid less than their values of marginal product
b. men are paid less than their values of marginal product
c. both women and men are paid less than their values of marginal product
d. women’s values of marginal product are less than men’s, even though they are equally productive
75. Occupational segregation creates:
a. a redistribution of a larger national output
b. a redistribution of a smaller national output
c. a larger national output but no redistribution
d. a smaller national output but no redistribution

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