Questions and Answers of Contemporary Labor Economics

“There is an inherent cost to society that accompanies any union wage gain.That cost is the diminished efficiency with which labor resources are allocated.”Explain this contention. Do you agree?
Indicate the amount of work time lost each year because of strikes. Cite circumstances under which the amount of work time lost during a specific strike might be a poor indicator of the amount of
Comment on each of the following statements:a. “Unions tie the hands of management and inhibit efficient decision making.”b. “Unions contribute to economic efficiency in that union wage
Compare the size of the fringe benefits received by union and nonunion workers and indicate why unions might be responsible for any differences.
Evidence suggests that the union wage advantage varies directly with the proportion of a given industry that is organized. Why is this?
What is the commonsense basis for expecting a union wage advantage? Explain how each of the following differences between union and nonunion firms might complicate one’s determination of whether
What role do information differences play in causing strikes?
Are strikes inefficient for the union and firm? Explain.
Explain the difference between efficient contracts and strongly efficient contracts.
How can both the union and the firm be better off by bargaining over the wage rate and employment rather than just the wage rate?
Assume that a union’s utility depends on only the wage rate and not the level of employment. In this case, what will be the outcome under the efficient contracts model?
Describe the various bargaining structures that exist in the United States. What might be the advantages of multi employer bargaining to a union? To employers?What is pattern bargaining?
Summarize the organizational structure of the American labor movement, indicating the functions of the AFL–CIO, Change to Win, the national unions, and the local unions.
Why have unions evolved? To what extent is the civilian labor force unionized?Indicate the(a) Industrial(b) Occupational distribution of union members.Why are relatively fewer white-collar workers
Analyze this statement: “U.S. tariffs on imported products from low-wage foreign nations create an incentive for migration of low-skilled immigrants into the United States.”
If one believes in free international trade, then to be consistent, must one also advocate unrestricted international migration of labor?
Is it consistent to favor the free movement of labor within the United States and be opposed to immigration into the United States?
Comment on this statement: “If we deported all undocumented persons who are now in the United States, our total national unemployment would decline by the same number of people.”
How might a wage differential between two regions be reduced via movements of capital to the low-wage area?
Use the variables in Equation (9.1) to cite at least two reasons why it may be rational for a family to migrate from one part of the country to another, even though the hypothetical move produces a
Why are people who possess specific human capital less likely to change jobs, other things being equal, than those who possess general human capital? Does this imply that people who possess large
What is meant by the term beaten paths? How do such paths increase Vp in Equation (9.1) and thereby increase the likelihood of migration? Equation 9.1 v, = E, – E, Σ (1 + i)" (1 + i)" n= 1 n=1
Suppose that(a) Employers must pay higher wages to attract workers from wider geographic areas and hence higher wages are associated with longer commuting distances (less of the amenity “closeness
Explain how each of the following relates to wage differentials: (a) Seniority provisions,(b) Varying state licensing requirements for occupations,(c) Racial segregation,(d) Regional
Speculate about why the average hourly wage rate paid by manufacturing firms to production workers is so much lower in Mississippi than in Michigan (Table
What is the hedonic theory of wage differentials? Discuss the characteristics of a normal-profit isoprofit curve. Combine isoprofit curves with worker indifference curves to explain how two workers
Explain how the theory of investment in human capital relates to the notion of noncompeting groups and how the latter relates to the presence of equilibrium wage differentials.
Analyze why college professors generally earn less than their professional PhD counterparts who are employed by corporations.
Suppose all workers and jobs in a hypothetical economy are homogeneous.Explain why no wage differentials would exist if this economy were perfectly competitive and information and mobility were
As an employer, suppose you find it costly to monitor employee effort 100 percent of the time. What compensation options are available to ensure that you get appropriate levels of employee effort?
What are stock options? How do they relate to the principalagent problem?
How might payment of an efficiency wage(a) Reduce shirking by employees(b) Reduce employee turnover? What is the implication of the efficiency wage theory for unemployment? In what way are piece
Discuss the following statement in relationship to(a) The tournament theory of executive pay(b) The “World of Work” 7.2 on faculty tenure: “The new economics of personnel rationalizes whatever
People often sell goods (or raffle tickets) as part of a fund raising project.These projects typically offer valuable prizes to those who sell over a fixed number of units. Often a grand prize, like
Speculate on what actions workers might take to resolve a free rider problem arising from a profit-sharing plan.
Demonstrate graphically why someone guaranteed an annual salary might choose to work fewer hours than someone who could earn that same amount through hourly pay. Reconcile your answer with the fact
In Figure 7.6 the reduction in the cost of fringe benefits resulted in an increase in the amount of fringe benefits and a reduction in the wage income received. Figure 7.6 Redraw the worker?s
What is an isoprofit curve as it relates to wages and fringe benefits? What is a normal-profit isoprofit curve? In what respect is a normal-profit isoprofit curve a budget constraint as viewed by a
Use graphical analysis to show how an unexpected decline in labor demand may set off a cobweb adjustment cycle in a labor market for highly trained professionals. In explaining your graph,
Assume a firm(a) Is a monopsonist in hiring labor(b) Is selling its product as a monopolist. Portray this market graphically. Correctly label all relevant curves, show the equilibrium wage rate and
Assume a surplus of doctors exists. Use labor market supply and demand graphics to depict this outcome. How would the market remedy this situation in the short run and the long run? QB VMP Bx VMP,
Explain why most market labor supply curves slope upward and to the right, even though individual labor supply curves are presumed to be backwardbending.How does the height of a market labor supply
List the distinct characteristics of a perfectly competitive labor market and compare them to the characteristics of monopsony.
Contrast and explain changes in the demand for textile workers and fast-food workers over the past two decades. Why is the elasticity of labor demand crucial to the debate about the effects of
The productivity of farm labor has increased substantially since World War II.How can this be reconciled with the fact that labor has moved from agricultural to nonagricultural occupations over this
Use the concepts of(a) Substitutes in production versus pure complements in production(b) Gross substitutes versus gross complements to assess the likely impact of the rapid decline in the price of
Referring to the output and substitution effects, explain why an increase in the wage rate for autoworkers will generate more of a negative employment response in the long run than in the short run.
Explain graphically how isoquant–isocost analysis can be used to derive a long run labor demand curve. Distinguish between the substitution and output effects.
Explain how marginal revenue product is derived. Why is the MRP curve the firm’s short-run labor demand curve? Explain how and why the labor demand curves of a perfectly competitive seller and an
Explain how each of the following, other things being equal, would shift the isocost curve shown in Figure 5.9: (a) A decrease in the price of L, (b) A simultaneous and proportional increase in the
Graph a short-run production function (one variable resource) showing the correct relationships between total product, average product, and marginal product.
Explain why isoquant curves for inputs that are substitutes in production(a) Are negatively sloped,(b) Are convex to the origin,(c) Never intersect.
Data show that the age–earnings profiles of women are considerably lower and flatter than those for men. Can you explain these differences?
As the following diagram indicates, the distribution of ?ability? (here measured by IQ scores) is normal or bell-shaped, but the distribution of earnings is skewed to the right. Can you use human
Distinguish between general and specific on-the-job training. Who normally pays for general training? Specific training? Why the difference? Are there any exceptions to these generalizations? Explain.
Why might funds be available on less favorable terms for human capital investments than for physical capital investments? In your judgment, does this difference justify public subsidy in the form,
Why is the internal rate of return from human capital investment subject to diminishing returns? Explain the rationale for identifying the “diminishing rate of returns to education curve” as
Assume that a recent high school graduate reads in a magazine that the rate of return on a college education has been estimated to be 15 percent. What advice would you give the graduate in using this
Comment on each of the following statements:a. Given the work life cycle of the ?traditional? woman, it may be rational for women to invest in less human capital than men.b. Older workers are less
What is the internal rate of return on a human capital investment? Given the internal rate of return, what is the appropriate investment criterion? Compare this to the criterion relevant to the
Why might the decision to undertake an educational program be treated as an investment? From a private perspective, what costs and benefits are associated with obtaining a college education? What are
What has happened to the length of the workweek and work year during the past hundred years? Explain any significant trends.
“The ratio of the incomes of African-American families to the incomes of white families has increased quite slowly in the past two or three decades, despite legislation and a variety of public
Compare the participation rates of(a) White and African American women(b) White and African-American men. In each case explain any differences.
What factors account for the increase in the participation rates of married women? Use a work?leisure diagram (similar, for example, to Figure 2.8) to explain how each of these factors might
What factors account for the declining participation rates of older males?
Briefly discuss the major components of the aggregate labor supply.
Evaluate the following statements:a. “An employer might reduce worker absenteeism by changing from a standard wage rate to premium pay for hours that exceed a fixed minimum.”b. “A worker who
Suppose Congress changed our Social Security law to allow recipients to earn as much as they wanted with no reduction in benefits. Use a work–leisure diagram to show the predicted effects on labor
In the United States, payments to disabled workers on the average replace about half of their former earnings. In some other countries such as Sweden and the Netherlands, workers with disabilities
Use Figure 2.11 to explain the following statement: ?Although premium wage rates for overtime work will induce workers to work more hours than would a straighttime equivalent wage rate, the latter
Using Figure 2.10, demonstrate that Smith has a stronger ?taste? for leisure and a weaker ?taste? for work than Jones. What factor(s) might underlie this difference in tastes? Redraw Smith?s
What is the reservation wage? ?Other things being equal, one?s reservation wage increases as larger amounts of nonlabor income are realized.? Do you agree? Explain. Redraw the indifference curves of
What set of circumstances will tend to cause an individual to choose not to participate in the labor force? What generalizations can you formulate on the basis of(a) Education,(b) The presence of
Employ a diagram similar to Figure 2.5 to show an individual?s leisure?income choices before and after a wage rate decrease. Isolate the income and substitution effects, indicate whether each
What information is embodied in (a) an indifference curve (b) the budget line in the work–leisure model? Why are indifference curves(a) Downwards loping(b) Convex to the origin?Draw an indifference
What benefits might accrue to you from studying labor economics?
Briefly state and justify your position on each of the following proposals:a. Women and minorities should be paid the same wage as white males, provided the work is comparable.b. The United States
In 2014, 155.9 million workers were in the U.S. labor force, of which 9.6 million were unemployed. In view of these facts, how can economists say that labor is a scarce resource?
Suppose in a given year a firm’s productivity increases by 2 percent and its nominal wages rise by 5 percent. What would you expect to happen to the firm’s unit labor costs and product price?
Explain the relationship between changes in(a) Nominal wage rates,(b) Productivity,(c) Unit labor costs,(d) Product price. What does this relationship suggest about the expected impact of
Assume that the official national unemployment rate rises from 4 percent to 8 percent because of a major recession. What impact do you predict this would have on(a) The African American to white
Use the following data to calculate(a) The size of the labor force,(b) The official unemployment rate,(c) The labor force participation rate for a hypothetical economy: population = 500; population
Assume that labor productivity is rising by 6 percent in the economy as a whole but by only 1 percent in industry X. Also assume that nominal wages for all industries rise in accordance with the
Suppose that in an economy 100 worker-hours produce 160 units of output in year 1. In years 2 and 3, worker-hours are 120 and 130 and units of output are 216 and 260, respectively. Using year 2 as
Speculate about how successful attempts by government to tighten the distribution of family income through transfers might inadvertently make the distribution of annual earnings more unequal.
Suppose a hypothetical economy consists of 20 nonunionized private sector workers who have the following annual earnings: $18,000, $9,000, $82,000, $12,000, $13,000, $76,000, $61,000, $14,000,
Explain how each of the following would affect the probability that a job searcher will accept the next wage offer and thus affect the expected length of his or her unemployment:(a) A decline in the
In what way does discrimination redistribute national income? How does it reduce national income?
Assume that the occupational distribution of males and females is as follows:Calculate the index of segregation and explain its meaning. Compare the meaning of an index of 0.40 with indexes of 1.00
Use simple supply and demand analysis to explain the impact of occupational segregation or “crowding” on the relative wage rates of men and women. Who gains and who loses as a consequence of
In Becker’s taste for discrimination model, what is the meaning of the discrimination coefficient d? If the monetary value of d is, say, $6 for a given white employer, will that employer hire
What has been the general secular trend of the weekly earnings of full-time female workers compared with male workers? What factors help explain this trend?
Answer these questions on the basis of the information in the accompanying table. The data are for a competitive firm.a. What is the profit-maximizing level of job safety as viewed by the firm?
Why are most labor unions—whose constituents receive wages substantially above the minimum wage—strong supporters of the minimum wage? Why might unions composed of skilled workers who are pure
Explain how an increase in the minimum wage coulda. Reduce teenage employment but leave the teenage unemployment rate unaffected.b. Reduce investment in human capital.
Use the following labor market data to determine the answers to (a) through (d):a. Is this tax progressive? Explain.b. What is the before-tax equilibrium wage rate?c. What effect does the tax have on
Explain how the existence of national, state, and city parks might affecta. Labor demand in the recreational vehicle industry.b. The demand for workers who build and maintain equipment for private
Assuming that income includes both private and public goods and that leisure is a normal good, explain how a major reduction in governmentally provided goods might increase a person’s optimal
Explain why a voluntary army may be less expensive to society than an army composed of draftees. Which will likely be less expensive to taxpayers?

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