University of North Carolina, Economics 190, Fall
Midterm Exam 2, March 27, 2003
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Answer |
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1. In a competitive labor
market with negligible moving costs, regional wage differentials
a)
would
diminish over time.
b)
would
increase over time.
c)
would
stay the same.
2. If the supply of labor is
perfectly inelastic, the burden of the payroll tax is
a)
borne
entirely by the employers.
b)
borne
entirely by the workers.
c)
shared
equally by employers and workers.
d)
borne
by the government.
3. For the nondiscriminating
monopsony, the marginal cost of labor
a)
is
generally greater than the current wage.
b)
is
always equal to the current wage.
c)
always
decreases as employment increases.
d)
coincides
with the supply of labor.
4.
A
discriminating monopsony would hire
a)
exactly
as many people as a nondiscriminating monopsony would.
b)
exactly
as many people as a competitive industry would.
c)
exactly
as many people as a monopoly would.
d)
only
men.
5. The “stopping rule” says
that people who maximize their earnings
a)
stop
going to school after high school.
b)
stop
going to school when the MRR is zero.
c)
stop
going to school when the MRR is highest.
d)
stop
going to school when the MRR equals their discount rate.
6. All else equal, a person
with a high discount rate will
a)
get
just as much education as a person with a low discount rate.
b)
get
more education than a person with a low discount rate.
c)
get
less education than a person with a low discount rate.
d)
get
no education at all.
7. Suppose that high-ability
individuals face a total cost of $30K per year of education, while low-ability
individuals face a total cost of $40K per year of education. If an employer believes someone is
‘high-ability’ they get paid a lifetime salary of $400K. An individual believed to be ‘low-ability’
gets paid $330K. The employer wants to separate
the job applicants accurately. Therefore the $400K-salary-job must require at
least
a)
1.21
years of education.
b) 1.75 years of education.
c) 3.5 years of education.
d) 8.25 years of education.
8. According to the
‘signaling’ view,
a)
education
will not be positively correlated with earnings.
b)
education
will not be positively correlated with productivity.
c)
education
will not change a person’s productivity.
d)
education
will change a person’s productivity.
9. Who pays for specific
training?
a)
The
firm.
b)
The
worker.
c)
Firm
and worker share the cost.
d)
Neither
the firm nor the worker.
10. The National Labor
Relations Board (NLRB) was established by the
a)
Wagner
Act.
b)
Helms-Burton
Law.
c)
Gramm-Hollings
Act.
d)
McCain-Feingold
Bill.
11. The main criticism of the
monopoly union model is that
a)
it
is unrealistic.
b)
unions
do not raise wages.
c)
employers
decide what the wage is.
d)
the
predicted outcome is inefficient.
12. If the “spill-over effect”
is important and the “threat effect” is not, then
a)
the
measured union wage gap understates the actual union wage gain.
b)
the
measured union wage gap overstates the actual union wage gain.
c)
workers
are less productive than otherwise.
d)
workers
are not afraid to join a union.
13. Delayed compensation exists
because
a)
firms
want to save money while workers are young.
b)
workers
want to save money when they are young.
c)
it
reduces ‘shirking’ and increases effort.
d)
workers
like seeing their wages go up.
Part
B: “Problems” (39 points= 60% of test grade) Please answer all questions.
1.
(12 points=
5+2+2+3) The table below shows the supply of labor that a
non-discriminating monopsony faces. The
final column shows the value of the marginal product at the given levels of
E. Column 5 reproduces column 2 for
convenience only.
|
Wage
(w) |
Number
of workers willing to work at that wage (E) |
Wage
bill (w×E) |
Marginal
Cost of Labor (MCE) |
E |
VMPE |
|
6 |
2 |
12 |
--------------- |
2 |
18 |
|
8 |
3 |
24 |
12 |
3 |
17 |
|
10 |
4 |
40 |
16 |
4 |
16 |
|
12 |
5 |
60 |
20 |
5 |
15 |
|
14 |
6 |
84 |
24 |
6 |
14 |
|
16 |
7 |
112 |
28 |
7 |
a)
Complete the table.
b)
How many workers would this non-discriminating monopsony employ? What wage would it pay?
c)
How many workers would a competitive industry employ? What wage would it pay?
d)
If the employer is a non-discriminating monopsony, then what is the highest
minimum wage that could be imposed on the firm without reducing employment
below the monopsony level (Hint: this may be easier to answer if you graph it,
but you are not graded for your graph).
w=$16
2. (6 points= 3+3) Suppose you
live for two periods: in the first you get an education; in the second, you
work in the labor market. If you choose
to become a dentist, you must spend $50,000 on tuition and books in the first
period, and your earnings are $175,000 in the second period. If you choose to become a physicist you only
have to spend $20,000 in the first period, and your earnings in the second
period are $140,000.
a)
If
the discount rate is 5%, which option is preferable?
PV(dentist)= -50+175/1.05= 116.67
PV(physicist)= -20+140/1.05= 113.33
The
“dentist” option is preferable.
b)
If
the discount rate is 25%, which option is preferable?
PV(dentist)= -50+175/1.25= 90
PV(physicist)= -20+140/1.25= 92
With the higher discount rate, the physicist option has become preferable- the future benefits no longer outweigh the greater upfront costs.
3. (8 points) People differ in
‘ability’, and this ability is usually not observed. This creates a problem for researchers who want to investigate
the return to education.
a) Why is there a problem? What is the problem?
The problem is that unobserved ability is part of the “error
term”. Ability and schooling are
probably strongly correlated. As a
result, the estimated coefficient on “schooling” is biased.
b) How have researchers tried to overcome this problem?
They
have looked at settings where differences in schooling were not the
result of differences in ability.
·
Identical twins
·
The Draft lottery
·
Quarter of birth
[Some
have tried to control for ability by including test scores, which are imperfect
measures of ability.]
4. (7 points) The monopoly
union model is one model of wage and employment determination.
Some economists have found it inadequate. Please explain why and illustrate.
5. (6pts= 4+2). The share of union members in the U.S. workforce has been declining for about 50 years.
a) What are the most common explanations for this decline?
·
Changes in the structure of employment (industry,
gender, race)
·
Decline in demand for union representation
·
Managerial opposition
·
[‘Substitution’: Governments provide some of the
benefits/protection of unionization.]
b) According to Henry Farber, what was the relative importance of the factors he examined? Explain.
·
Only a small share (of the 1977-84 decline in the
number of workers who said they would vote for a union) was explained by changing
demographics etc.
·
A substantial share was explained by increased job
satisfaction and “union instrumentality”
·
The share accounted for by managerial opposition was
not quantified (we only know there was ‘more’ of it).