Econ 305 Dr.

Claudia Strow Sample Final Exam Questions: Note: As always, this is just a guide and is not all inclusive. 1. a. What do indifference curves and isoprofit curves look like comparing risk of injury and wage? Which isoprofit curves and indifference curves are steepest? How does sorting occur without government intervention? b. What are the pros and cons of government regulations such as those est. by OSHA? c. The concept of compensating wage premiums for dangerous work does not apply to industries like the coal industry, where the union has forced all wages and other compensation items to be the same. Because all mines must pay the same wage, compensating differentials cannot exist. Is this statement correct? (Assume wages and other forms of pay must be equal for dangerous and nondangerous work and consider the implications for individual labor supply behavior.) 2. There are 100 jobs in a town and 100 workers. 20 of the jobs are dangerous, 80 are safe. Workers have the following preferences: worker one dislikes danger by $1, worker two dislikes danger by $2, worker three dislikes danger by $3, and so forth (such that worker hundred dislikes danger by $100). Assume workers are mobile and well-informed and the labor market is mobile and perfectly competitive. Also assume that safe jobs pay $300 a week. a. How much will dangerous jobs pay per week? b. How much will worker one receive in economic rent per week? (Note: economic rent is the difference between the wage paid to a particular worker and the wage just sufficient to keep that person in his or her present employment). c. How much will worker one hundred receive in economic rent per week? d. Suppose that engineering advances have made it less costly to create a safe work environment; and second, the success of the new reality TV show Die on the Job has given viewers a romantic perception of work-related risks. Using supply and demand, describe how each of the two explanations could lead to a drop in the compensating wage differential. What impact would each of the factors have on the number of workers hired in risky jobs? How can we know which factor had the largest effect on the market? 3. Many employers offer the employees certain benefits such as health insurance, retirement plans, gym memberships, etc. Why? 4. a. Mary works in a daycare and is considering taking a class to become a certified CPR instructor. This certification will increase her income level by $2,000 every year for the rest of her working career. Her income will not increase until her certification is complete 1 year from now. She anticipates that she will work for only two years after her certification is complete. What is the most she will pay to take the course if there are no other costs or benefits from the certification and the interest rate is 10%? 5. What are the major characteristics of age/earnings profiles? Why do they have these characteristics? How do age/earnings profiles differ for men and women? How have womens age/earnings profiles changed over the past few decades?

6. a. What factors increase ones likelihood of migrating? b. What factors decrease ones likelihood of quitting his/her job? Why/ c. Comment on the costs and benefits of increased immigration for domestic workers. 7. a. If the signaling model is correct in explaining the higher incomes of college graduates, why might the private rate of return to college be relatively high and yet the social rate of return relatively low? b. Suppose that the government decides to start subsidizing college education. Discuss what will happen to the signaling value of a persons education if the signaling model is correct. c. Suppose that for high-ability people, the cost of school is $10,000 per year and for low-ability people the cost of school is $20,000 per year. Firms are willing to pay high-ability people $610,000 and low-ability people $540,000, but firms cannot immediately distinguish between the two types of workers. If firms wish to use education as a signaling device, what is the minimum number of years of education that firms should require for workers to earn the higher pay? 8. a. What has happened in recent decades to the female/male wage ratio? What is the current ratio? Why have the recent changes most likely occurred? b. What is the index of occupational dissimilarity for women and men? How has it changed over the last few decades? How does occupational discrimination differ from occupational segregation? How does gender based occupational segregation differ from racial occupational segregation as an explainer of wage gaps? In which case is occupational segregation more prevalent? IN which case has there been more integration in the past few decades? c. What accounts for the earnings disparity between men and women? Is it a compensating differential that equalizes the sum of advantages and disadvantages between mens and womens occupations? Why or why not? d. What would a comparable worth law involve? What are the arguments for and against such a law? e. Consider the following claim: After controlling for age and education, it is found that the average woman earns approximately $0.80 for every $1 earned by the average man. After controlling for occupation to control for compensating wage differentials (maybe men accept riskier or more stressful jobs than women, and there are paid more), the average woman earns $0.92 for every $1 earned by the average man. The conclusion is made that occupational choice reduces the gender gap by 12 cents and discrimination is left to explain the remaining 8 cent gap. Explain why discrimination may explain more than 8 cents of the 20 cent wage gap (and thus why occupational choice may explain less than 12 cents of the gap). Explain why discrimination may explain less than 8 cents of the 20 cent wage gap

9. a. Two people are applying for the same job in a large bank in New York City. Both are identical in observable characteristics, with one exception. One is from Boston and has a distinct Bostonian accent, while the other grew up in Alabama and has a deep southern accent. Who do you think has the better chance of being hired? Why? Could prejudice play a role? What about statistical discrimination? b. What are the impacts of prejudice by employers, workers, and consumers on the wages and employment of minority workers? 10. Suppose that African American workers and Caucasian workers are thought to be equally productive on average, but employers cannot perfectly observe the productivity of a given worker. In addition, suppose that employers know more about a workers true productivity when the worker is a member of the employers racial group. In other words, African American employers have better information about the true productivity of African American workers, and Caucasian employers have better information about the true productivity of Caucasian workers. Assuming that you are a low-skill Caucasian worker, would you rather work for a black employer or a white employer in order to maximize your income? Explain. 11. In 1960, the proportion of the population that was black in southern states was higher than the proportion of the population that was black in northern states. It is also true that the black-white wage ratio was much higher in the north than in the south. Does the difference in relative wages across the regions indicate that southern employers have higher preferences for discrimination than northern employers? Why or why not? Sample Multiple choice: 1. On a graph of wage rates versus risk of injury, indifference curves are convex because (a) risk of injury decreases workers utility. (b) each additional dollar of pay increases utility more than the previous dollar. (c) utility is increasing along indifference curves. (d) at high levels of risk, a worker is more willing to give up wages for increased safety than at low levels of risk. 2. Fewer women leaving the labor market to raise children has given women the incentive to acquire ________ on-the-job training early in their careers, yielding age-earnings profiles which are ________ than they were about twenty years ago. (a) more; steeper (b) more; flatter (c) less; steeper (d) less; flatter

3. Lawyers work in pleasant surroundings at low risk of injury, but they generally receive higher pay than construction workers. This is because

(a) construction workers dont receive a compensating wage differential for their risk of injury and less pleasant surroundings. (b) lawyers and construction workers are not comparable due to different preferences towards injury. (c) lawyers and construction workers are not comparable due to different education levels. (d) lawyers work must be considered unpleasant by many workers. 4. When workers indifference curves are drawn for wage rates versus injury risk (a) the indifference curves slope downwards (b) the indifference curves slope upwards (c) the indifference curve is vertical at the desired amount of risk (d) utility increases as a worker moves to the right along a given indifference curve. (e) utility decreases as a worker moves to the right along a given indifference curve. Firm As isoprofit curves are flatter than those of firm B. Therefore, (a) firm A will be willing to pay higher wages at higher risk levels than firm B. (b) firm B will be willing to pay higher wages at higher risk levels than firm A. (c) both firms will pay the same wages, but firm B will have higher profits than firm A. (d) risk is more costly to reduce for firm A

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(e) both b and d are correct

6. Which of the following will increase the likelihood a person will go to college? (a) an increase in the interest rate (or discount rate). (b) the age of the worker is older (c) an decrease in the internal rate of return to college. (d) a decrease in the earnings of high school graduates. In the signaling model, assume high school graduates are paid a stream of income whose present value is $200,000. College graduates are paid a stream of income whose present value is X. College education costs higher-productivity workers $50,000 and lower-productivity workers $150,000. Which of the following values of X would cause higher-productivity workers to go to college and lower-productivity workers to not go to college? (a) $225,000 (b) $400,000 (c) $375,000 (d) $275,000 For workers who emigrate to the United States from a country with a less equal distribution of earnings, (a) the largest potential gain exists for unskilled workers. (b) the largest potential gain exists for skilled workers. (c) immigrants will be positively selected with respect to skills. (d) immigrants will, on average, have a higher skill level than the workers who do not emigrate.

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9. In the mid-1990s the labor force participation rate of black women was ________ the rate of white women, while the rate for black men was ________ the rate of white men. (a) greater than; less than (b) greater than; equal to (c) equal to; less than (d) equal to; equal to

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Suppose that a female worker has considerable child-raising duties at home which reduce her labor market productivity and pay by 10% compared to her male counterpart. Also suppose that their observable productivity characteristics are equal. Then the standard procedure to measure discrimination will estimate that wage discrimination reduces her wages by ________, while her actual reduction in wages due to labor market discrimination is ________. (a) 10%; 10% (b) 10%, 0% (c) 0%; 10% (d) 0%; 0% The Equal Pay Act of 1963 (a) outlawed sexual discrimination in firing of workers. (b) outlawed sexual discrimination in hiring of workers. (c) outlawed separate pay scales for men and women who perform the same jobs. (d) outlawed racial discrimination in hiring of workers.

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12. Research evidence shows that African Americans and women receive less informal on-the-job training than white males. The reason is: (a) discrimination in promotion. (b) African Americans on average have less education than Caucasians. (c) women have a lower level of job attachment than men. (d) all of the above