Chapter 19

Earnings and Discrimination

MULTIPLE CHOICE

1. The basic neoclassical theory of the labor market predicts that

a. workers earn a wage equal to the value they contribute to the economy.
b. wages are determined entirely by market demand.
c. wages are determined entirely by market supply.
d. workers are compensated according to their contribution to the social value of society.
ANSWER: a. workers earn a wage equal to the value they contribute to the economy.
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2. When wage differentials are observed in competitive labor markets, the neoclassical theory of labor markets would
predict
a. market discrimination.
b. that wages will converge over time.
c. that wage differences reflect social status.
d. a difference in the value of marginal product of labor.
ANSWER: d. a difference in the value of marginal product of labor.
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3. Since a major league baseball player makes more money than a private preschool teacher we can conclude that
a. society values the services of a major league baseball player more than the services of a private preschool
teacher.
b. a major league baseball player generates more revenue in the economy than a private preschool teacher.
c. labor markets are generally inefficient and inequitable.
d. None of the above are correct.
ANSWER: b. a major league baseball player generates more revenue in the economy than a private preschool teacher.
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4. Shaquille O’Neal, a famous basketball player, earns more than a university professor. The neoclassical theory of
labor markets would suggest that
a. university professors who want to be rich should play basketball.
b. Shaquille O’Neal is smarter than a university professor.
c. Shaquille O’Neal is the greatest basketball player of all time.
d. Shaquille O’Neal contributes more to the economy's production of goods and services than a university
professor.
ANSWER: d. Shaquille O’Neal contributes more to the economy's production of goods and services than a university
professor.
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5. When competitive labor markets are in equilibrium, the neoclassical theory of labor predicts that
a. the distribution of wages across the economy will be "bell-shaped".
b. the wage paid to each worker is equal to that worker’s marginal product of labor.
c. each worker is paid the value of his/her marginal contribution to the economy.
d. wage differentials cannot exist.
ANSWER: c. each worker is paid the value of his/her marginal contribution to the economy.
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581
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6. In recent years, the ratio of earnings of the typical U.S. college graduate to the earnings of the typical high school
graduate without additional education has
a. risen as the demand for skilled labor has increased relative to the demand for unskilled labor.
b. risen as the demand for skilled labor has decreased relative to the demand for unskilled labor.
c. fallen as the demand for skilled labor has increased relative to the demand for unskilled labor.
d. fallen as the demand for skilled labor has decreased relative to the demand for unskilled labor.
ANSWER: a. risen as the demand for skilled labor has increased relative to the demand for unskilled labor.
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7. If unskilled labor is relatively plentiful and cheap in many foreign countries, then as the United States expands its
trade with these foreign countries, the domestic demand for
a. unskilled labor will rise and skilled labor will fall.
b. skilled labor will rise and unskilled labor will fall.
c. both skilled and unskilled labor will rise proportionately.
d. both skilled and unskilled labor will be unaffected, assuming no barriers to free trade.
ANSWER: b. skilled labor will rise and unskilled labor will fall.
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8. When the supply of workers is plentiful, one would predict that market wages would be
a. determined outside the domain of the neoclassical theory.
b. determined solely by factors that affect demand.
c. low, other things equal.
d. high, other things equal.
ANSWER: c. low, other things equal.
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9. Other things equal, when the supply of workers is scarce, one would predict that market wages would be
a. relatively high.
b. relatively low.
c. determined solely by factors that affect demand.
d. determined outside the domain of the neoclassical theory.
ANSWER: a. relatively high.
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10. Other things equal—including the wage—which of the following statements is true?
a. The quantity of labor supplied for easy jobs exceeds that for difficult jobs.
b. The quantity of labor supplied for fun jobs exceeds that for dull jobs.
c. The quantity of labor supplied for safe jobs exceeds that for dangerous jobs.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
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11. Taxi cab drivers in large cities are likely to earn more than taxi cab drivers in rural areas. One reason for this wage
differential could be that
a. driving a taxi in a large city is more dangerous than driving in a rural area.
b. driving in large cities is more fun than driving in rural areas.
c. driving in a large city is easier than driving in a rural area.
d. it is unlikely that a taxi cab driver in a large city will be involved in a traffic accident that involves farm animals.
ANSWER: a. driving a taxi in a large city is more dangerous than driving in a rural area.
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 Chapter 19/Earnings and Discrimination  583

12. Park rangers at Yellowstone National Park are known to have low wages. This is likely to be partially a result of the
fact that
a. Park rangers are required to be college graduates.
b. Park rangers don't need much money to live.
c. Park ranger jobs are perceived to be dangerous.
d. Park ranger jobs are perceived to be "fun."
ANSWER: d. Park ranger jobs are perceived to be "fun."
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13. Public school teachers are known to have low wages. This is likely to be partially explained by the fact that
a. public school teacher jobs are easy.
b. public school teachers are required to be college graduates.
c. public school teachers need very little money to live.
d. many people perceive the job of public school teacher to have a high element of personal satisfaction.
ANSWER: d. many people perceive the job of public school teacher to have a high element of personal satisfaction.
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14. Store clerks are known to have low wages. This is likely to be partially explained by the fact that
a. store clerk jobs are perceived to be relatively easy.
b. store clerk jobs are perceived to be relatively difficult.
c. many people perceive the job of store clerk as having an element of personal satisfaction.
d. store clerks are required to have a college degree.
ANSWER: a. store clerk jobs are perceived to be relatively easy.
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15. A plumber who specializes in cleaning plugged sewer lines is typically paid a higher wage than a plumber who
works on installing water systems in new residential housing. This is likely to be partially explained by the fact that
a. plumbers who work with sewer lines require years of specialized training.
b. plumbing jobs that involve sewer lines are likely to have an element of personal satisfaction.
c. plumbers who work with sewer lines are more likely to work a standard shift.
d. plumbers who work with sewer lines are likely to be perceived as having a "dirty" job.
ANSWER: d. plumbers who work with sewer lines are likely to be perceived as having a "dirty" job.
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16. The job of night watchman at the Punxsutawny Phil Groundhog museum is known to have a high wage. This is
likely to be partially explained by the fact that the job is likely to
a. require specialized skills.
b. be difficult.
c. be incredibly dull.
d. provide plenty of time for self-reflection.
ANSWER: c. be incredibly dull.
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17. Professional underwater divers are known to have high wages and work an average of only 20 hours a week. The
high wages are partially explained by the fact that the job is likely
a. to be very dull.
b. to be fun.
c. to be very dangerous.
d. All of the above are correct.
ANSWER: c. to be very dangerous.
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584  Chapter 19/Earnings and Discrimination

Use the following information to answer questions 18 through 20

Ferris B., a student at a community college, is trying to consider what he should do for summer employment. Two
recruiters show up at his school in search of summer workers. Recruiter A is looking for lifeguards to patrol the beach at
an exclusive island resort in the Caribbean. Recruiter B is looking for workers to staff positions at a summer youth camp.

18. Ferris is carefully considering the options that each recruiter presents. On the basis of knowledge obtained in his
economics class, Ferris is likely to conclude that
a. the lifeguard job is likely to be more fun than the summer camp job.
b. the large pool of applicants for the lifeguard job will likely lead to a high wage.
c. the small pool of applicants for the summer camp job will likely lead to a high wage.
d. All of the above are correct.
ANSWER: c. the small pool of applicants for the summer camp job will likely lead to a high wage.
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19. Ferris is carefully considering the options that each recruiter presents. On the basis of knowledge obtained in his
economics class, Ferris is likely to conclude that
a. wages are unlikely to be affected by job requirements.
b. since the lifeguard job would expose him to a threat of skin cancer, the wage is likely to be low.
c. if the lifeguard job has a requirement for special training or certification, the wage offer will be higher than
otherwise.
d. if the lifeguard job also requires a willingness to clean public restrooms, the wage offer will be lower than
otherwise.
ANSWER: c. if the lifeguard job has a requirement for special training or certification, the wage offer will be higher
than otherwise.
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20. Ferris is carefully considering the options that each recruiter presents. On the basis of knowledge obtained in his
economics class, Ferris is likely to conclude that
a. the lifeguard job is likely to be more fun than the summer camp job, so the wage for that job is likely to be higher
than otherwise.
b. if the summer camp job doesn't require any special skills, the wage for that job is likely to be lower than
otherwise.
c. since the summer camp job requires some night shift work, the wage for that job is likely to be lower than
otherwise.
d. All of the above are correct.
ANSWER: b. if the summer camp job doesn't require any special skills, the wage for that job is likely to be lower than
otherwise.
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 Chapter 19/Earnings and Discrimination  585

Use the following information to answer questions 21 through 23

Travis, a student at a community college, is trying to consider what he should do for summer employment. Two recruiters
show up at his school in search of summer workers. Recruiter A is looking for workers to help a disaster relief agency
distribute food aid in Africa. Recruiter B is looking for custodial help to clean motel rooms in a motel located near the
entrance to a famous National Park.

21. Travis is carefully considering the options that each recruiter presents. On the basis of knowledge obtained in his
economics class, Travis is likely to conclude that
a. the job in Africa is likely to have a large amount of job satisfaction, so the large pool of applicants will likely lead
to a higher wage.
b. the job cleaning motel rooms is likely to be disagreeable, so a small pool of applicants for the job will likely lead
to a lower wage.
c. the job that requires the most experience will likely have a higher wage.
d. All of the above are correct.
ANSWER: c. the job that requires the most experience will likely have a higher wage.
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22. Travis is carefully considering the options that each recruiter presents. On the basis of knowledge obtained in his
economics class, Travis is likely to conclude that
a. if the motel job also requires an ability to do general plumbing repairs, the wage offer will be higher than
otherwise.
b. wages are likely to be affected by job requirements.
c. if the food distribution job has a requirement for special training or certification, this would tend to increase the
wage offer.
d. since the food distribution job would expose him to the Ebola virus, the wage is likely to be high.
e. All of the above are correct.
ANSWER: e. All of the above are correct.
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23. Travis is carefully considering the options that each recruiter presents. On the basis of knowledge obtained in his
economics class, Travis is likely to conclude that
a. if the motel job requires some night shift work, wages are likely to be lower than otherwise.
b. the job that is likely to be the most fun is more likely to have a higher wage.
c. if the motel job doesn't require any special skills, the wage offer is likely to be lower than otherwise.
d. All of the above are correct.
ANSWER: c. if the motel job doesn't require any special skills, the wage offer is likely to be lower than otherwise.
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24. The term “compensating differential“ always refers to

a. the fact that workers that do similar work should be paid the same wage.
b. the fact that some workers live further from their jobs than do other workers.
c. a wage difference that is distinguishable on the basis of monetary characteristics.
d. a wage difference that arises from nonmonetary characteristics of different jobs.
ANSWER: d. a wage difference that arises from nonmonetary characteristics of different jobs.
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25. When workers do identical work, but get paid different wages, there is likely to be
a. a compensating differential.
b. a vast inequity in wages.
c. no market explanation for the wage difference.
d. differences that are difficult to identify.
ANSWER: a. a compensating differential.
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586  Chapter 19/Earnings and Discrimination

26. When workers who work the night shift are paid more than those who do identical work on the day shift, this is
referred to as a
a. discriminatory wage practice.
b. compensating differential.
c. wage inequity.
d. a market inefficiency.
ANSWER: b. compensating differential.
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27. The statement that "night shift workers make a higher wage than dayshift workers" is likely to reflect the fact that
a. most people’s preference is to work the day shift.
b. some people just prefer to work a night shift for nonmonetary reasons.
c. night shift jobs are generally more technically difficult.
d. more women than men work the night shift.
ANSWER: a. most people’s preference is to work the day shift.
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28. Wage differences that can't be explained by the number of years of training are likely to be considered to result from
factors associated with
a. demand, but not supply.
b. supply, but not demand.
c. compensating differentials.
d. conditions of regulated markets.
ANSWER: c. compensating differentials.
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29. Technology is an important factor in explaining the high incomes of superstars because
a. technology accounts for differences in incomes within all occupations.
b. technology makes it possible for the best producer to supply every customer at low cost.
c. technology which can limit access to the superstars is available.
d. only technologically literate superstars can earn super incomes.
ANSWER: b. technology makes it possible for the best producer to supply every customer at low cost.
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30. A recent law school graduate is considering two offers to practice law, one in California and one in Alabama. Rumor
has it that it is very difficult to pass the Alabama bar exam and meet other certification requirements required by the
Alabama Bar Association. Assuming all other things equal, the attorney would expect
a. to be unable to predict the wage difference between Alabama and California.
b. to make a higher wage in California.
c. to make a higher wage in Alabama.
d. wages in California and Alabama to be identical.
ANSWER: c. to make a higher wage in Alabama.
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31. The statement that "Coal miners are paid more than workers with similar levels of education" is likely to reflect the
fact that
a. coal mining is a declining industry.
b. coal mining jobs are potentially more dangerous than jobs with comparable education requirements.
c. all coal mines use union labor.
d. coal exports are rising.
ANSWER: b. coal mining jobs are potentially more dangerous than jobs with comparable education requirements.
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 Chapter 19/Earnings and Discrimination  587

32. The statement that "professors are paid less than lawyers and doctors, but have similar amounts of education" is
likely to reflect market conditions such that
a. education is not likely to be related to compensation.
b. professors must receive a compensating wage differential.
c. the jobs of doctors and lawyers provide more job satisfaction than the jobs of professors.
d. All of the above are correct.
ANSWER: b. professors must receive a compensating wage differential.
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33. The statement that "public school teachers are paid less than engineers, but have similar amounts of education" is
likely to reflect market conditions such that
a. engineering classes at the university are universally less difficult than are education classes at the university.
b. engineers have lower intrinsic job satisfaction than public school teachers.
c. wage discrimination is more likely in markets for public school teachers.
d. there is no compensating wage differential that applies to public school teachers.
ANSWER: b. engineers have lower intrinsic job satisfaction than public school teachers.
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34. Which of the following would be considered an investment in human capital?

a. education
b. a teacher's blackboard
c. the purchase of a new computer to enhance labor productivity
d. All of the above are correct.
ANSWER: a. education
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35. Expenditure on human capital

a. reflects an expectation of some future return on the investment.
b. is generally embodied in a specific individual.
c. reflects an investment of resources today, to raise productivity in the future.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
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36. The ownership of human capital

a. is typically embodied in related physical capital.
b. may be subject to government restrictions on transferability.
c. is not generally transferable.
d. is easily transferable to multiple individuals.
ANSWER: c. is not generally transferable.
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37. The return to investment in human capital is observed

a. only when workers are assigned identical tasks.
b. in the wage differential between workers.
c. in the high high school dropout rate in inner-city urban school districts.
d. in the low wages of educated factory workers.
ANSWER: b. in the wage differential between workers.
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38. From the perspective of market demand, human capital investment is reflected
a. in an increase in labor demand.
b. in an increase in the marginal product of labor.
c. in a firm's willingness to pay more for more productive workers.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
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39. A prestigious private high school requires each of its teachers to have a Ph.D. in the subject they teach. This
requirement is likely to
a. increase the supply of teachers to this school.
b. increase wages for teachers at the private school, relative to those at public schools.
c. decrease the marginal product of teachers at the private school.
d. All of the above are correct.
ANSWER: b. increase wages for teachers at the private school, relative to those at public schools.
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40. When an employer pays the cost of educating a worker, it is likely that the employer
a. is demonstrating altruistic motives.
b. is pursuing some objective other than profit-maximization.
c. hopes to recapture its investment in the form of increased labor productivity.
d. receives reimbursement from the government for the cost of the education.
ANSWER: c. hopes to recapture its investment in the form of increased labor productivity.
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41. The wage difference between jobs that require education and those that don't
a. is not likely to be related to productivity differences.
b. is a barrier to obtaining an education.
c. does not affect the supply of workers in the different labor markets.
d. encourages workers to bear the cost of acquiring education.
ANSWER: d. encourages workers to bear the cost of acquiring education.
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42. The Asian Development Bank has been investing in education and training programs in the developing economies
of Asia over the last five years. As a result of this investment, economists who adhere to the human capital view of
education would predict
a. rising wages as labor productivity is enhanced.
b. falling wages as the labor market is saturated with too many educated workers.
c. the marginal productivity of capital would not be affected.
d. the marginal productivity of labor would not be affected.
ANSWER: a. rising wages as labor productivity is enhanced.
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43. The statement "the rich get richer and the poor get poorer" is evident in the fact that
a. the earnings gap between high-skill jobs and low-skill jobs has increased over the last several years.
b. developing countries do not pay workers the value of their marginal product.
c. developed economies export high-skill jobs to developing countries.
d. All of the above are correct.
ANSWER: a. the earnings gap between high-skill jobs and low-skill jobs has increased over the last several years.
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 Chapter 19/Earnings and Discrimination  589

44. Economists who study labor markets have documented

a. a general decline in the wages of college graduates over the last decade.
b. an increasing trend in U.S. labor markets for employers to pay all costs of education and training.
c. a decrease in the earnings gap between low-skill and high-skill workers over the past two decades.
d. an increase in the earnings gap between low-skill and high-skill workers over the past two decades.
ANSWER: d. an increase in the earnings gap between low-skill and high-skill workers over the past two decades.
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45. When computers are used to replace workers on a factory production line, the wage gap between skilled and
unskilled workers
a. will increase only if the company can increase the price of its product.
b. is likely to increase.
c. is likely to decrease.
d. will not change.
ANSWER: b. is likely to increase.
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46. Economists have proposed the following hypotheses to explain the rising wage gap between skilled and unskilled
workers.
(i) increasing the role of unions in setting skilled wage scales
(ii) increasing international trade
(iii) technological change
a. (i) and (iii) only
b. (ii) and (iii) only
c. (i) and (ii) only
d. (iii) only
ANSWER: b. (ii) and (iii) only
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47. The difference in wages paid to major-league baseball players and minor-league baseball players is most likely due
to
a. chance.
b. natural ability.
c. the fact that the players’ union is strong.
d. the fact that the players’ union is weak.
ANSWER: b. natural ability.
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48. Business firms that pay salespeople a percentage of the sales they make are attempting to reward
a. work effort.
b. loyalty to the firm.
c. years of schooling.
d. years of experience.
ANSWER: a. work effort.
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49. Workers whose skills become obsolete as a result of technological change are often paid a lower wage as a result of
a. natural ability.
b. geographic location of employment.
c. chance.
d. work effort.
ANSWER: c. chance.
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50. Economists who study labor markets have discovered that

a. only about 5 percent of wage differences are related to chance.
b. ability is not difficult to measure, but is largely insignificant in explaining wage differences.
c. work effort is difficult to measure, but is not likely to contribute much to an explanation of wage differences.
d. ability, effort, and chance are likely to be significant contributors to wage differences.
ANSWER: d. ability, effort, and chance are likely to be significant contributors to wage differences.
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51. In empirical analysis of factors that help explain wages,

a. effort and ability are not likely to contribute to large differences in wages in the U.S. economy.
b. economists typically find that measurable factors explain less than half of the variation in wages.
c. economists typically find few factors which are not explicitly measurable.
d. unmeasurable influences on wage differences are found to be quite small.
ANSWER: b. economists typically find that measurable factors explain less than half of the variation in wages.
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52. The "beauty premium" can be explained by the fact that

a. marginal productivity in all occupations has a physical dimension.
b. in some occupations, physical attractiveness of a worker may enhance the value of their marginal product.
c. beauty acts as an implicit signal of innate intelligence.
d. beautiful people are likely to reflect "good breeding."
ANSWER: b. in some occupations, physical attractiveness of a worker may enhance the value of their marginal
product.
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53. The human capital theory explanation for why people invest in education has been challenged by a theory that
suggests
a. schooling acts as a signal of future ability.
b. humans cannot be considered "capital."
c. productivity is not linked to wages.
d. college is largely a social phenomenon.
ANSWER: a. schooling acts as a signal of future ability.
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54. A signaling theory of education suggests that

a. people who attend college are more likely to capture a "beauty premium."
b. education is a signal of social status.
c. education does not necessarily increase productivity.
d. education will sever the link between innate ability and compensation.
ANSWER: c. education does not necessarily increase productivity.
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55. When employers sort employment applications into high-ability and low-ability people based on the attainment of a
college degree (irrespective of major), they are providing evidence in support of the
a. human-capital theory of education.
b. signaling theory of education.
c. principle that education enhances marginal productivity.
d. neoclassical principle that most business owners are more interested in discriminating against a particular group
than in maximizing profits.
ANSWER: b. signaling theory of education.
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 Chapter 19/Earnings and Discrimination  591

56. Liberal arts majors are typically told that a liberal arts degree "does not restrict one's ability to find successful
employment in business." This statement is likely to reflect a philosophy that a liberal arts degree is valuable in that
it is
a. a signal of high ability.
b. an indication of how education can directly enhance marginal productivity.
c. directly linked to accumulation of human capital.
d. All of the above are correct.
ANSWER: a. a signal of high ability.
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57. A signaling theory of education suggests that educational attainment is correlated with
a. marginal productivity.
b. increasing wage gaps.
c. decreasing wage gaps.
d. natural ability.
ANSWER: d. natural ability.
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58. According to the human-capital view, education

a. has no effect on lifetime earnings.
b. alters work ethic.
c. enhances productivity.
d. is an indicator of raw intellect.
ANSWER: c. enhances productivity.
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59. Empirical evidence based on analysis of compulsory schooling laws suggests that
a. innate ability is the most important determinant of wages.
b. education increases the marginal productivity of workers.
c. students in states with compulsory schooling laws did not have higher wages than those in other states.
d. almost all wages can be explained by factors linked to the signaling theory.
ANSWER: b. education increases the marginal productivity of workers.
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60. If empirical tests of the human-capital theory find conclusive evidence that education enhances productivity, then
optimal public policy would suggest that
a. the benefits of increased productivity need to be weighed against the opportunity cost of education.
b. compulsory schooling laws always increase social well-being.
c. everyone should be required to finish high school.
d. a college education should be required of all members of society.
ANSWER: a. the benefits of increased productivity need to be weighed against the opportunity cost of education.
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61. As more and more companies rely on computer databases and less on filing cabinets, the
(i) demand for computer programmers will rise.
(ii) wage paid to filing clerks will rise.
(iii) wage paid to computer programmers will rise.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.
ANSWER: c. (i) and (iii)
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62. Which of the following scenarios would serve to decrease the demand for unskilled labor in our country?
a. increased productivity gains among the unskilled laborers
b. increased demand for goods produced by unskilled labor
c. increased international trade with countries where unskilled labor is more plentiful
d. increased supply of migrant workers
ANSWER: c. increased international trade with countries where unskilled labor is more plentiful
TYPE: M DIFFICULTY: 2 SECTION: 19.1

63. Why do major-league baseball players get paid more than minor-league players?
a. Major-league players are better athletes.
b. The higher wage reflects a compensating differential.
c. Playing in the major leagues in less pleasant then playing in the minor leagues.
d. The higher wage is often due to educational discrepancies.
ANSWER: a. Major league players are better athletes.
TYPE: M DIFFICULTY: 1 SECTION: 19.1

64. In the signaling theory of education,

(i) schooling itself does not lead to more productive workers.
(ii) the worker signals the employer that he is a valuable employee because he was willing to spend time to get an
education.
(iii) schooling makes employees less productive.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (iii) only
d. All of the above are correct.
ANSWER: a. (i) and (ii) only
TYPE: M DIFFICULTY: 2 SECTION: 19.1

65. Which of the following statements represents the idea behind signaling in education?
a. Education can turn an unproductive person into a productive person.
b. Most college graduates wouldn’t be half as productive if it we not for the years they spend in the classroom.
c. The more naturally productive someone is the more they are inclined to educate themselves.
d. All of the above are correct.
ANSWER: c. The more naturally productive someone is the more they are inclined to educate themselves.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

66. Which of the following theories explains why increased education translates into higher wages?
(i) human-capital theory
(ii) the theory of compensating differential
(iii) signaling theory
a. (i) only
b. (i) and (ii)
c. (i) and (iii)
d. (ii) and (iii)
ANSWER: c. (i) and (iii)
TYPE: M DIFFICULTY: 2 SECTION: 19.1

67. Which theory is supportive of the idea that increasing educational levels for all workers would raise all workers’
productivity and thereby their wages?
a. the theory of compensating differential
b. the efficient-market hypothesis
c. human-capital theory
d. signaling theory
ANSWER: c. human-capital theory
TYPE: M DIFFICULTY: 2 SECTION: 19.1
 Chapter 19/Earnings and Discrimination  593

68. Which theory would support the idea that education does not enhance productivity, and raising all workers’
educational levels would not affect wages?
a. signaling theory
b. human-capital theory
c. physical-capital theory
d. the efficient-market hypothesis
ANSWER: a. signaling theory
TYPE: M DIFFICULTY: 2 SECTION: 19.1

69. Which of the following theories would suggest that attending school does not improve productivity, but that high-
ability people are more likely to stay in school?
a. physical-capital theory
b. human-capital theory
c. signaling theory
d. neoclassical theory
ANSWER: c. signaling theory
TYPE: M DIFFICULTY: 2 SECTION: 19.1

70. The most popular movie stars have high incomes for a number of reasons. One such reason is
a. an ability for almost everyone to enjoy movies at a relatively low cost.
b. above-average intellect of the average movie star.
c. a compensating differential.
d. a lack of technological advances in the movie industry.
ANSWER: a. an ability for almost everyone to enjoy movies at a relatively low cost.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

71. Why is a plumber never likely to be as rich as a movie star?

a. Compensating differential creates a higher wage in the movie business.
b. There haven’t been any decent technological advances in the plumbing industry.
c. Productivity levels are low in the plumbing industry due to low worker morale.
d. A plumber can provide his services to only a limited number of customers.
ANSWER: d. A plumber can provide his services to only a limited number of customers.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

72. Minimum-wage laws serve to

(i) have little or no effect on many workers’ wages.
(ii) create above-equilibrium wages for some unskilled workers.
(iii) create a shortage of unskilled labor.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.
ANSWER: a. (i) and (ii)
TYPE: M DIFFICULTY: 2 SECTION: 19.1

73. Studies have shown that nonunion workers earn about

a. 10 to 20 percent more than union workers.
b. 10 to 20 percent less than union workers.
c. 40 to 50 percent more than union workers.
d. 40 to 50 percent less than union workers.
ANSWER: b. 10 to 20 percent less than union workers.
TYPE: M DIFFICULTY: 1 SECTION: 19.1
594  Chapter 19/Earnings and Discrimination

74. A union’s major source of power is its

a. high-profile leadership.
b. ability to increase productivity.
c. ability to threaten a strike.
d. ability to deny employers the opportunity to bargain over wages.
ANSWER: c. ability to threaten a strike.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

75. How does the theory of efficiency wages explain above-equilibrium wages?
a. Employers are forced to pay higher wages in efficient markets.
b. Employers give their workers a higher wage in the hope that it will lead to increased productivity.
c. Workers get a raise in wage when they prove they are increasing their productivity.
d. Workers demand higher wages to compensate for poor fringe benefits.
ANSWER: b. Employers give their workers a higher wage in the hope that it will lead to increased productivity.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

76. If an employer’s behavior is supportive of the theory of efficiency wages, the employer would raise wages in an
effort to
(i) increase worker effort.
(ii) decrease worker turnover.
(iii) raise the quality of workers that apply for jobs at the firm.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

77. Which theory explains the fact that some firms may choose to pay their employees more then they would earn as
determined by equilibrium in the labor market?
a. the theory of efficiency wages
b. the marginal-productivity theory
c. human-capital theory
d. signaling theory
ANSWER: a. the theory of efficiency wages
TYPE: M DIFFICULTY: 1 SECTION: 19.1

78. Effective minimum-wage laws will most likely result in

(i) an increased demand for labor.
(ii) a surplus of labor.
(iii) higher incomes for all unskilled workers.
a. (i) only
b. (ii) only
c. (i) and (iii)
d. (ii) and (iii)
ANSWER: b. (ii) only
TYPE: M DIFFICULTY: 2 SECTION: 19.1
 Chapter 19/Earnings and Discrimination  595

79. Above-equilibrium wages caused by efficiency wages will most likely result in
(i) an increase in the quantity of labor supplied.
(ii) a surplus of labor.
(iii) increased unemployment of labor.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

80. When economists study wages, they relate a worker's wage to those variables that are most subject to measurement.
Which of the following are most likely to be unmeasurable?
a. years of schooling, age, and years of experience
b. job characteristics, gender, and race
c. ability, effort, and chance
d. gender, race, and geographic location
ANSWER: c. ability, effort, and chance
TYPE: M DIFFICULTY: 1 SECTION: 19.1

81. Which of the following would represent a part of the capital stock?
a. a teacher’s blackboard
b. the cash flow of a firm
c. the firm’s portfolio of financial assets
d. accounting services
ANSWER: a. a teacher’s blackboard
TYPE: M DIFFICULTY: 1 SECTION: 19.1

82. Differences in wages between highly educated workers and less educated workers is most likely to be considered
a. a compensating differential for the cost of becoming educated.
b. a signal that the market is indifferent to the worker’s level of human capital.
c. unfair by all economists.
d. completely fair by everyone.
ANSWER: a. a compensating differential for the cost of becoming educated.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

83. Which of the following statements is true of wages, educational attainment, and gender?
a. Male workers are compensated for attending college, while female workers generally are not.
b. Female workers are compensated for attending college, while male workers generally are not.
c. Both genders receive a higher wage for attending college.
d. Neither gender receives a higher wage for attending college.
ANSWER: c. Both genders receive a higher wage for attending college.
TYPE: M DIFFICULTY: 1 SECTION: 19.1

84. In recent years, the amount of international trade in which the United States engages has
a. increased.
b. decreased a little.
c. decreased substantially.
d. remained fairly constant.
ANSWER: a. increased.
TYPE: M DIFFICULTY: 1 SECTION: 19.1
596  Chapter 19/Earnings and Discrimination

85. Of the theories listed below, which do the best job of explaining why educated people are paid more than
uneducated people?
a. human-capital and price-fixing
b. human-capital and signaling
c. wage-differential and common -demand
d. cost-allocation and derived-demand
ANSWER: b. human-capital and signaling
TYPE: M DIFFICULTY: 2 SECTION: 19.1

86. Laws across the United States have provided a way for economists to study the effects of education on wages
because of differences from state to state in
a. legalized gambling.
b. minimum-wage laws.
c. antitrust laws.
d. the legal age requirement for dropping out of school.
ANSWER: d. the legal age requirement for dropping out of school.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

87. Students who are required to finish more schooling have been found to
a. suffer from unemployment volatility.
b. be more likely to feel the effects of minimum wage increases.
c. be happier with their career choices.
d. earn a higher wage.
ANSWER: d. earn a higher wage.
TYPE: M DIFFICULTY: 1 SECTION: 19.1

88. Economists usually agree that if a study shows conclusive evidence that education is directly tied to increases in
productivity,
a. nothing should be done.
b. all students should be compelled to finish high school.
c. all students should be compelled to obtain a college degree.
d. the costs of education should also be considered.
ANSWER: d. the costs of education should also be considered.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

89. The very high pay earned by the best actors and actresses is partially explained by the fact that
a. they benefit from a compensating differential.
b. moviegoers all want to see the very best actors, not second-rate actors.
c. they have acting degrees from accredited acting schools.
d. the supply of good actors is very large.
ANSWER: b. moviegoers all want to see the very best actors, not second-rate actors.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

90. Which of the following statements is false?

a. Some firms pay wages that are above the equilibrium wage.
b. Workers sometimes form labor unions to push their wages up.
c. Wages never deviate from the balance of supply and demand in the market for labor.
d. The federal government mandates that employers pay their workers at least as much as the minimum wage.
ANSWER: c. Wages never deviate from the balance of supply and demand in the market for labor.
TYPE: M DIFFICULTY: 2 SECTION: 19.1
 Chapter 19/Earnings and Discrimination  597

91. The term “compensating differential“ refers directly to a difference in

a. wages earned by workers in different jobs.
b. the level of education required for workers in different jobs.
c. the level of safety that workers experience in different jobs.
d. the level of personal and intellectual satisfaction that workers experience in different jobs.
ANSWER: a. wages earned by workers in different jobs.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

92. Which of the following comparisons best illustrates a compensating differential?

a. John’s wage is higher than Jane’s because the value of John’s marginal product is higher than Jane’s.
b. Beth’s wage is higher than Bill’s because Beth is very personable and Bill is very gruff.
c. Karl’s wage is higher than Kay’s because Karl’s job may well cause long-term health problems and Kay’s job will
not impair her health.
d. All of the above are good illustrations of compensating differentials.
ANSWER: c. Karl’s wage is higher than Kay’s because Karl’s job may well cause long-term health problems and Kay’s
job will not impair her health.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

93. Other things equal, a particular job will likely pay a higher wage if it involves
a. danger to the worker.
b. personal enjoyment for the worker.
c. intellectual stimulation for the worker.
d. All of the above are correct.
ANSWER: a. danger to the worker.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

94. Human capital is

a. an important determinant of wages, but it plays no important role in the production of goods and services.
b. an important determinant of wages, and it plays an important role in the production of goods and services.
c. a specific type of physical capital.
d. very different from physical capital in that physical capital represents an investment, while human capital does
not represent an investment.
ANSWER: b. an important determinant of wages, and it plays an important role in the production of goods and
services.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

95. Workers with more human capital on average earn substantially higher pay than workers with less human capital in
a. most countries, but not in the United States.
b. the United States, but not in most other countries.
c. the United States and in most other countries.
d. None of the above are correct; the evidence fails to indicate that human capital is a significant factor in earnings
anywhere in the world.
ANSWER: c. the United States and in most other countries.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

96. In the United States, the earnings gap between workers with high skills and workers with low skills
a. has never been documented by reliable evidence.
b. is evident, but it has remained roughly constant over the past 20 years.
c. is evident, but it has diminished over the last 20 years.
d. is evident, and it has widened over the last 20 years.
ANSWER: d. is evident, and it has widened over the last 20 years.
TYPE: M DIFFICULTY: 2 SECTION: 19.1
598  Chapter 19/Earnings and Discrimination

97. Over the last 20 years or so, the earnings gap between workers with high skills and workers with low skills has
a. remained roughly constant for both men and women.
b. widened for both men and women.
c. widened for men and narrowed for women.
d. narrowed for men and widened for women.
ANSWER: b. widened for both men and women.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

98. Economists who attempt to explain the increasing earnings gap between skilled and unskilled workers offer two
main hypotheses:
a. One hypothesis emphasizes education and the other emphasizes random influences.
b. One hypothesis emphasizes education and the other emphasizes supply and demand.
c. One hypothesis emphasizes international trade and the other emphasizes technology.
d. One hypothesis emphasizes Hollywood-inspired attitudes and the other emphasizes technology.
ANSWER: c. One hypothesis emphasizes international trade and the other emphasizes technology.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

99. Economists who attempt to explain the increasing earnings gap between skilled and unskilled workers offer two
main hypotheses. Both hypotheses
a. suggest that demand-and-supply conditions have played a less important role in determining workers’ wages in
recent years.
b. suggest that, over time, the demand for skilled labor has risen relative to the demand for unskilled labor.
c. emphasize the growing importance of international trade in recent years.
d. emphasize the growing importance of women and teenagers in the workforce in recent years.
ANSWER: b. suggest that, over time, the demand for skilled labor has risen relative to the demand for unskilled labor.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

100. The “international trade“ hypothesis has been advanced as an explanation for the widening earnings gap between
skilled and unskilled workers. This hypothesis asserts that, when international trade expands, the domestic demand
for skilled labor
a. rises and the domestic demand for unskilled labor also rises.
b. rises and the domestic demand for unskilled labor falls.
c. falls and the domestic demand for unskilled labor rises.
d. falls and the domestic demand for unskilled labor also falls.
ANSWER: b. rises and the domestic demand for unskilled labor falls.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

101. The “technology“ hypothesis has been advanced as an explanation for the widening earnings gap between skilled
and unskilled workers. This hypothesis emphasizes the likelihood that technological advances have
a. increased the supply of skilled workers and increased the supply of unskilled workers.
b. increased the supply of skilled workers and decreased the supply of unskilled workers.
c. increased the demand for skilled workers and decreased the demand for unskilled workers.
d. decreased the demand for skilled workers and decreased the demand for unskilled workers.
ANSWER: c. increased the demand for skilled workers and decreased the demand for unskilled workers.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

102. Studies of wages by labor economists indicate that measurable variables—age, job characteristics, years of
education, and years of experience—account for
a. virtually none of the variation in wages in our economy.
b. some, but less than 50 percent of the variation in wages in our economy.
c. about 75 percent of the variation in wages in our economy.
d. almost all of the variation in wages in our economy.
ANSWER: b. some, but less than 50 percent of the variation in wages in our economy.
TYPE: M DIFFICULTY: 2 SECTION: 19.1
 Chapter 19/Earnings and Discrimination  599

103. Certain factors that are probably important in determining wages are nevertheless difficult to measure.
Consequently, labor economists find those factors difficult to incorporate into their studies of labor markets and
wages. Those factors include
a. effort and natural ability.
b. natural ability and years of experience.
c. years of experience and job characteristics.
d. All of the above are correct.
ANSWER: a. effort and natural ability.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

104. There is some evidence to indicate that, the higher a person’s education level,
a. the higher the person’s earnings.
b. the more likely it is that person will experience overall satisfaction with life.
c. the more likely it is that person will find true love in society.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

105. The belief that education makes a person more productive and thereby raises his or her wage is most sensibly
referred to as the
a. compensating-differential view of education.
b. natural-ability view of education.
c. unmeasured-variables view of education.
d. human-capital view of education.
ANSWER: d. human-capital view of education.
TYPE: M DIFFICULTY: 1 SECTION: 19.1

106. The most important source of human capital is

a. education.
b. effort.
c. chance.
d. physical strength.
ANSWER: a. education.
TYPE: M DIFFICULTY: 1 SECTION: 19.1

107. According to the signaling theory of education,

a. schooling sends signals to employers in much the same way that advertising sends signals to consumers.
b. a person becomes more productive by earning a college degree.
c. education is unrelated to natural ability.
d. All of the above are correct.
ANSWER: a. schooling sends signals to employers in much the same way that advertising sends signals to consumers.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

108. A college degree makes a person more productive according to

a. both the human-capital theory of education and the signaling theory of education.
b. the human-capital theory of education, but not according to the signaling theory of education.
c. the signaling theory of education, but not according to the human-capital theory of education.
d. neither the human-capital theory of education nor the signaling theory of education.
ANSWER: b. the human-capital theory of education, but not according to the signaling theory of education.
TYPE: M DIFFICULTY: 2 SECTION: 19.1
600  Chapter 19/Earnings and Discrimination

109. The “superstar“ phenomenon can apply to which of these jobs?

a. high-school teacher
b. anchorperson for a national news program
c. heart surgeon
d. All of the above are correct.
ANSWER: b. anchorperson for a national news program
TYPE: M DIFFICULTY: 2 SECTION: 19.1

110. For a “superstar“ to emerge, it must be the case that

a. it is possible to supply the good or service that the superstar produces at low cost to every customer.
b. some customers are willing and able to pay large sums of money to enjoy the good or service provided by the
superstar.
c. the superstar has a natural monopoly on his or her good or service.
d. the superstar is willing to settle for a level of pay that is less than his or her value of marginal product.
ANSWER: a. it is possible to supply the good or service that the superstar produces at low cost to every customer.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

111. The primary economic explanation as to why a world-renowned architect cannot attain the “superstar“ status that
an athlete or actor can attain is that
a. architects’ services are not as highly valued by society as are the services of athletes and actors.
b. only physically attractive people can become superstars, and it would be a coincidence if a highly talented
architect were also physically attractive.
c. government regulations place restrictions on the incomes of architects, but there are no such restrictions on the
incomes of athletes or actors.
d. it is impossible for an architect to supply his or her services at low cost to every customer.
ANSWER: d. it is impossible for an architect to supply his or her services at low cost to every customer.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

112. Studies suggest that union workers earn

a. no more than nonunion workers in similar jobs.
b. about 10 to 20 percent more than nonunion workers in similar jobs.
c. about 30 to 40 percent more than nonunion workers in similar jobs.
d. None of the above are correct; no national studies have been conducted to compare the earnings of union
workers and nonunion workers.
ANSWER: b. about 10 to 20 percent more than nonunion workers in similar jobs.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

113. If we were to observe above-equilibrium wages in a particular labor market, then a possible explanation might be
that
a. the theory of efficiency wages holds true for that market.
b. there is a powerful labor union representing workers in that market.
c. workers are largely unskilled and/or inexperienced and minimum-wage laws are effectively holding wages up
in that market.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 1 SECTION: 19.1
 Chapter 19/Earnings and Discrimination  601

114. A study conducted by economists Alan Krueger and Stacy Dale concluded that
a. earnings of college graduates were mostly unrelated to the toughness of their colleges’ admissions standards.
b. students from low-income families had little or nothing to gain by being admitted to a college that has tough
admissions standards.
c. earnings of college graduates were only slightly higher than earnings of high school graduates.
d. people who attended colleges where sports are important have higher incomes than people who attended
colleges where sports are not important.
ANSWER: a. earnings of college graduates were mostly unrelated to the toughness of their colleges’ admissions
standards.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

115. The theory of efficiency wages asserts that

a. unions are successful in forcing employers to pay higher wages.
b. employers strive to hold wages below equilibrium levels.
c. employers find it profitable to pay above-equilibrium wages.
d. efficient workers actually earn lower wages than those earned by inefficient workers.
ANSWER: c. employers find it profitable to pay above-equilibrium wages.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

116. The theory of efficiency wages challenges the assumption that

a. workers are efficient.
b. workers have an incentive to shirk their responsibilities to their employers.
c. wages adjust to balance labor supply and labor demand.
d. firms sometimes choose to pay their workers above-equilibrium wages.
ANSWER: c. wages adjust to balance labor supply and labor demand.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

117. Which of the following sets of circumstances is likely to provide the best evidence in support of the theory of
efficiency wages?
a. Workers in the market are unskilled and not represented by a union, and their wage exceeds the equilibrium
wage.
b. Workers in the market are highly skilled and not represented by a union, and their wage exceeds the equilibrium
wage.
c. Workers in the market are highly skilled and represented by a union, and their wage exceeds the equilibrium
wage.
d. Employers in the market are known for reducing the workers’ wage whenever they get an opportunity to do so.
ANSWER: b. Workers in the market are highly skilled and not represented by a union, and their wage exceeds the
equilibrium wage.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

118. Coal mining is a dangerous and dirty job. Suppose someone developed new machinery that made coal mining safer
and cleaner at the same time it made coal miners more productive. We would expect that the wages of coal miners
would
a. rise.
b. fall.
c. stay exactly the same.
d. rise, fall or stay the same.
ANSWER: d. rise, fall or stay the same.
TYPE: M DIFFICULTY: 3 SECTION: 19.1
602  Chapter 19/Earnings and Discrimination

119. Suppose that the country of Libraria made a concerted effort to increase the educational level of its people. If this
effort had no effect on the wages of its workers, one might consider this as evidence in support of
a. the human-capital view of education.
b. the signaling view of education.
c. both the human-capital and the signaling view of education.
d. neither the human-capital nor the signaling view of education.
ANSWER: b. the signaling view of education.
TYPE: M DIFFICULTY: 2 SECTION: 19.1

120. Nemedia and Aquilonia have just started to trade with each other. Nemedia exports goods produced with skilled
labor and imports goods made with unskilled labor from Aquilonia. Over time we would expect that the wages of
skilled labor in Nemedia will
a. rise and the wages of unskilled labor in Nemedia will fall.
b. fall and the wages of unskilled labor in Nemedia will rise.
c. rise and the wages of unskilled labor in Nemedia will rise.
d. fall and the wages of unskilled labor in Nemedia will fall.
ANSWER: a. rise and the wages of unskilled labor in Nemedia will fall.
TYPE: M DIFFICULTY: 3 SECTION: 19.1

121. Market discrimination is evident when

a. wages of individuals differ on the basis of some recognizable attribute that is unrelated to productivity.
b. wage rates differ for similar jobs.
c. consumers prefer to shop at some stores, and not at others.
d. All of the above are correct.
ANSWER: a. wages of individuals differ on the basis of some recognizable attribute that is unrelated to productivity.
TYPE: M DIFFICULTY: 1 SECTION: 19.2

122. Discrimination occurs when the marketplace offers different opportunities to similar individuals who differ only by
a. level of education.
b. attitude toward the tradeoff between labor and leisure.
c. gender.
d. All of the above are correct.
ANSWER: c. gender.
TYPE: M DIFFICULTY: 1 SECTION: 19.2

123. Evidence of differences in average wages of women compared to men

a. are solely indicative of differences in productivity between genders.
b. provides conclusive evidence of broad patterns of discrimination on the basis of gender.
c. is seldom used to provide evidence of discriminatory bias.
d. does not provide conclusive evidence of discrimination.
ANSWER: d. does not provide conclusive evidence of discrimination.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

124. Evidence of differences in average wages of black workers compared to white workers
a. does not alone provide conclusive evidence of discrimination.
b. is solely indicative of differences in productivity between races.
c. is seldom used to provide evidence of discriminatory bias.
d. provides conclusive evidence of broad patterns of discrimination on the basis of race.
ANSWER: a. does not alone provide conclusive evidence of discrimination.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
 Chapter 19/Earnings and Discrimination  603

125. Evidence of discrimination in labor markets

a. has been quantified by economists for most races.
b. is conclusively identified in large differences in average wages rates between men and women.
c. is difficult to verify by reference to differences in average wage rates.
d. is more easily identified on the basis of race than gender.
ANSWER: c. is difficult to verify by reference to differences in average wage rates.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

126. Differences in human capital are likely to

a. be unrelated to wage rate differences across gender classifications, since both men and women are required to
complete requirements for a high school diploma.
b. be most helpful in explaining age discrimination, but unhelpful in explaining race discrimination.
c. explain some of the difference in average wage rates across age classifications.
d. explain all of the difference in average wage rates across gender classifications.
ANSWER: c. explain some of the difference in average wage rates across age classifications.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

127. Economists generally agree that

a. human capital theory provides the best explanation of discriminatory practices.
b. differences in average wages do not by themselves provide conclusive evidence about the magnitude of
discrimination effects in labor markets.
c. discrimination is exclusively an economic, rather than political, phenomenon.
d. much of the wage differential observed in the economy is due to discrimination.
ANSWER: b. differences in average wages do not by themselves provide conclusive evidence about the magnitude of
discrimination effects in labor markets.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

128. The fact that some schools direct females away from science and math courses is evidence of
a. labor-market discrimination.
b. cultural transition.
c. culturally driven differences in human capital accumulation.
d. All of the above are correct.
ANSWER: c. culturally driven differences in human capital accumulation.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

129. Females are clearly underrepresented in the economics profession. This is possibly evidence of
(i) self-selection of females into other occupations.
(ii) cultural bias in primary and secondary education.
(iii) labor market discrimination.
a. (i) and (ii) only
b. (i) and (iii) only
c. (ii) and (iii) only
d. All of the above are possible explanations.
ANSWER: d. All of the above are possible explanations.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

130. A natural antidote to employer discrimination in market economies is the

a. threat of judicial review.
b. profit motive.
c political process.
d. union movement.
ANSWER: b. profit motive.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
604  Chapter 19/Earnings and Discrimination

131. Firms that operate in competitive product markets and choose to practice discrimination in hiring workers
a. will survive, if they increase production and garner a larger market share.
b. will eventually earn zero economic profits.
c. will survive, as long as they are willing to have a smaller market share.
d. are likely to eventually go out of business.
ANSWER: d. are likely to eventually go out of business.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

132. In the early 20th century, streetcar seating which was segregated by race
a. was a result of economic discrimination by railroad company managers.
b. was less profitable than streetcar seating that didn't have restrictions.
c. was strongly supported by private streetcar companies.
d. led to higher revenue, and lower costs for streetcar companies.
ANSWER: b. was less profitable than streetcar seating that didn't have restrictions.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

133. Evidence suggests that business owners are generally

a. unable to determine the link between discrimination and profitability.
b. interested in profits only when discrimination is illegal.
c. more interested in making a profit than in discriminating against a particular group.
d. more interested in discrimination than in making a profit.
ANSWER: c. more interested in making a profit than in discriminating against a particular group.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

134. Some discriminatory hiring practices can be expected, even if markets are competitive, as a result of
a. unrestricted entry and exit in markets.
b. lower costs of hiring.
c. a perfectly elastic market demand.
d. customer preferences.
ANSWER: d. customer preferences.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

135. Evidence from a 1960s study of the market for baseball players
a. indicated that sports with strong player associations are unlikely to experience wage discrimination.
b. suggested that government regulation had eliminated most evidence of wage discrimination.
c. found some evidence of consumer-driven wage discrimination.
d. found that measurement of marginal productivity was very difficult for baseball players.
ANSWER: c. found some evidence of consumer-driven wage discrimination.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

136. Evidence from a 1988 study of the market for professional basketball players
a. found no evidence of consumer-driven wage discrimination.
b. found some evidence of consumer-driven wage discrimination.
c. found that measurement of marginal productivity was very difficult for basketball players.
d. indicated that sports with strong player associations are unlikely to experience wage discrimination.
ANSWER: b. found some evidence of consumer-driven wage discrimination.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
 Chapter 19/Earnings and Discrimination  605

137. A 1990 study of the market for collectable baseball cards suggested
a. there was no evidence of price discrimination on the basis of gender.
b. markets in which the product price is low, are not typically characterized by consumer-driven race
discrimination.
c. cards for white players (both hitters and pitchers) were 10 to 13 percent higher than those for comparable black
players.
d. cards for black players (both hitters and pitchers) were 10 to 13 percent higher than those for comparable white
players.
ANSWER: c. cards for white players (both hitters and pitchers) were 10 to 13 percent higher than those for
comparable black players.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

138. Politicians often point to wage differentials as evidence of labor market discrimination against ethnic minorities and
women; however, economists argue against this approach because
(i) they don’t believe the wage differential really exists.
(ii) they can’t agree on a definition of the term “discrimination.”
(iii) even in a labor market free of discrimination, different people have different wages.
a. (i) only
b. (iii) only
c. (i) and (ii)
d. (ii) and (iii)
ANSWER: b. (iii) only
TYPE: M DIFFICULTY: 2 SECTION: 19.2

Use the following information to answer questions 140 and 141.

In the small town of Hamilton, Montana there is a local hardware store called Eddy’s Hardware. There are only two types
of workers who apply for jobs at Eddy’s Hardware: cowboys and farmboys. Local politicians have received numerous
complaints that Eddy’s Hardware is practicing wage discrimination against cowboys. Eddy’s Hardware denies the
complaint and says the store is only trying to maximize profit.

139. Which of the following statements would weaken the discrimination complaint against Eddy’s Hardware?
a. Cowboys are more productive than farmboys.
b. Cowboys work longer hours than farmboys and their effort is greater.
c. Cowboys are generally less educated than farmboys in the field of hardware.
d. All of the above are correct.
ANSWER: c. Cowboys are generally less educated than farmboys in the field of hardware.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

140. Which of the following statements would strengthen the discrimination complaint against Eddy’s Hardware?
(i) Farmboys call in sick to work more often than cowboys.
(ii) Farmboys’ experience with hardware generally exceeds cowboys’ experience with hardware.
(iii) Many cowboys take six months per year off from work to compete in a rodeo circuit, and therefore have less
on-the-job experience with a hardware store.
a. (i) only
b. (i) and (iii)
c. (ii) and (iii)
d. All of the above are correct.
ANSWER: a. (i) only
TYPE: M DIFFICULTY: 2 SECTION: 19.2
606  Chapter 19/Earnings and Discrimination

141. Economists are skeptical that discrimination is employer driven because

(i) employers are not really interested in maximizing profit.
(ii) holding productivity constant, a profit-maximizing employer will hire the cheapest labor available.
(iii) discrimination cannot exist in markets.
a. (i) only
b. (ii) only
c. (i) and (ii)
d. (i) and (iii)
ANSWER: b. (ii) only
TYPE: M DIFFICULTY: 2 SECTION: 19.2

142. The fact that wage differentials continue to exist across different groups of workers leads economists to believe that
a. discrimination is in fact a very large economic problem.
b. differences in human capital and job characteristics must be important in explaining the differences in wages.
c. firms apparently are not profit maximizers.
d. the market has failed to properly allocate wages to different workers.
ANSWER: b. differences in human capital and job characteristics must be important in explaining the differences in
wages.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

143. Why would a wage differential due to discrimination be unlikely to persist in a competitive labor market?
(i) Workers who are victims of discrimination will eventually drop out of the labor market.
(ii) Competing firms will demand more labor from the workers who are temporarily victimized by discrimination.
(iii) There is a cost advantage for firms that do not discriminate.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. All of the above are correct.
ANSWER: b. (ii) and (iii)
TYPE: M DIFFICULTY: 2 SECTION: 19.2

144. Business owners who care only about making money are
a. likely to discriminate against certain groups of workers.
b. likely to be replaced by discriminating businesses.
c. very interested in the color of their employees’ skin.
d. at an advantage when competing against those who practice discrimination.
ANSWER: d. at an advantage when competing against those who practice discrimination.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

145. In the early twentieth century, streetcars in many southern cities were segregated by race. This racial segregation
was the result of
a. laws that required such segregation.
b. long-standing southern traditions on which the law was silent.
c. streetcar firms trying to maximize profits.
d. streetcar firms trying to minimize costs.
ANSWER: a. laws that required such segregation.
TYPE: M DIFFICULTY: 1 SECTION: 19.2

146. In the early twentieth century, racial segregation of streetcars in the southern cities was largely opposed by
a. streetcar firms.
b. government officials.
c. Sherman antitrust laws.
d. All of the above are correct.
ANSWER: a. streetcar firms.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
 Chapter 19/Earnings and Discrimination  607

Use the following information to answer questions 148 through 151.

Assume that the labor market for barbers is competitive and that it is differentiated into two groups: those who are bald
(or going bald) and those who have a full head of hair. Assume that the barbers in this market have identical hair-cutting
ability regardless of whether they are bald or not. Currently the equilibrium wage in the bald barber market is lower than
that in the non-bald market. Further assume that the market for haircuts is competitive.

147. If consumers do not discriminate between bald barbers and barbers with hair then
a. all barbershops will earn a normal economic profit.
b. the difference in wages is able to be maintained since a haircut is not a homogeneous good.
c. barbershops that hire barbers with hair will be more profitable than those that don’t.
d. barbershops that hire bald barbers will be more profitable than those that don’t.
ANSWER: d. barbershops that hire bald barbers will be more profitable than those that don’t.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

148. If consumers do not discriminate between bald barbers and barbers with hair then
a. competitive pressure in the market for haircuts will eventually cause the equilibrium wage in both markets to be
identical.
b. the equilibrium wage in the "bald" market will eventually fall.
c. the equilibrium wage in the "hairy" market will eventually rise.
d. wages in the market for barbers can never be in equilibrium.
ANSWER: a. competitive pressure in the market for haircuts will eventually cause the equilibrium wage in both
markets to be identical.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

149. Competition in the market for haircuts is consistent with which of the following statements?
a. Firms hiring nonbald barbers will have a cost advantage, leading to an increase in the demand for nonbald
barbers.
b. Firms that hire only bald barbers will eventually all go out of business.
c. Firms hiring bald barbers will enter the market, increasing the demand for bald barbers.
d. Firms hiring bald barbers will enter the market, decreasing the demand for bald barbers.
ANSWER: c. Firms hiring bald barbers will enter the market, increasing the demand for bald barbers.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

150. If some consumers in the market for haircuts have a strong preference for having their hair cut by a barber who is
not going bald,
a. the difference in wages will eventually disappear since a haircut is a homogeneous good.
b. barbershops that hire barbers with hair will be able to charge a higher price for a haircut to those consumers who
have a strong preference for barbers with hair.
c. barbershops that hire barbers with hair will always be much more profitable.
d. barbershops that hire barbers with hair will always be much more profitable.
ANSWER: b. barbershops that hire barbers with hair will be able to charge a higher price for a haircut to those
consumers who have a strong preference for barbers with hair.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

151. Empirical work that does not correct wages for differences in productivity of workers
a. is unlikely to find evidence of wage differentials.
b. can provide strong evidence of labor market discrimination.
c. is likely to misinterpret apparent evidence of labor market discrimination.
d. is accepted as superior to empirical work that does correct for differences in productivity of workers.
ANSWER: c. is likely to misinterpret apparent evidence of labor market discrimination.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
608  Chapter 19/Earnings and Discrimination

152. During the 1960s and 1970s, which of the following government programs were effective in eliminating the wage
gap?
(i) equal pay legislation
(ii) equal employment opportunity legislation
(iii) affirmative action legislation
a. (i), (ii) and (iii)
b. (i) only
c. (ii) and (iii) only
d. None of the above are correct.
ANSWER: d. None of the above are correct.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

153. Factors that are likely to have contributed to the declining gender wage gap include
(i) women gaining more continuous work experience since they are staying at home with children less than they
used to.
(ii) women working jobs that have more favorable working conditions.
(iii) women delaying marriage.
a. (i) and (ii)
b. (ii)and (iii)
c. (i) and (iii)
d. All of the above are correct.
ANSWER: c. (i) and (iii)
TYPE: M DIFFICULTY: 2 SECTION: 19.2

154. Factors that are likely to have contributed to the declining gender wage gap include the following:
(i) Fertility rates have fallen.
(ii) There has been an increasing tendency for mothers with young children to work.
(iii) More women are working at home.
a. (i) and (ii) only
b. (ii) and (iii) only
c. (i) and (iii) only
d. (i), (ii) and (iii)
ANSWER: a. (i) and (ii) only
TYPE: M DIFFICULTY: 2 SECTION: 19.2

155. What was the main reason the gender gap did not narrow during the early post-World War II years?
a. Employers were required to pay men more to do the same job women were doing.
b. Women added more to marginal product than men.
c. Many of the women who entered the labor force had not worked for quite some time and therefore lacked
experience.
d. All of the above are correct.
ANSWER: c. Many of the women who entered the labor force had not worked for quite some time and therefore
lacked experience.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

156. The main reason women were paid less than men in the early post-World War II years was due to
a. efficiency wages.
b. differences in human capital between the men and women.
c. the lack of basic skills among women.
d. cultural biases.
ANSWER: b. differences in human capital between the men and women.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
 Chapter 19/Earnings and Discrimination  609

157. Economists would argue that the gender wage gap is narrowing because of
a. decreased productivity among male workers.
b. increased training among women.
c. efficiency wages.
d. federal laws that were passed in the 1970s.
ANSWER: b. increased training among women.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

158. Women tend to expect to work more years of their life than they used to. This new development in work
expectations has led to
(i) increased fertility rates.
(ii) increased female enrollment in higher education.
(iii) increased relative earnings of female workers.
a. (i) and (ii)
b. (ii) and (iii)
c. (i) and (iii)
d. (i) only
ANSWER: b. (ii) and (iii)
TYPE: M DIFFICULTY: 2 SECTION: 19.2

159. Which of the following statements accurately reflects changes in the level of education among women?
(i) Women are receiving a smaller percentage of all bachelors degrees than they used to.
(ii) Women are receiving a larger percentage of professional degrees than they used to.
(iii) Relative earnings of women workers are falling despite educational advances.
a. (ii) only
b. (iii) only
c. (i) and (iii) only
d. All of the above are correct.
ANSWER: a. (ii) only
TYPE: M DIFFICULTY: 2 SECTION: 19.2

160. Attributing the gender wage gap to ongoing discrimination by employers will likely be incorrect because
a. some of the wage gap is explained by efficiency wages.
b. productivity differences between men and women are likely to exist.
c. compensating differentials usually lead to higher wages for women.
d. All of the above are correct.
ANSWER: b. productivity differences between men and women are likely to exist.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

161. One of the problems with calculating the true amount of discrimination that takes place in the market for labor is
a. the inability to calculate wage differentials.
b. the inability to see changes in the wage differentials over a period of time.
c. the difficulty in measuring productivity differences between workers.
d. inadequate reporting of discrimination.
ANSWER: c. the difficulty in measuring productivity differences between workers.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

162. A study concluded that wages paid to women having similar work experience and similar levels of human capital as
men amount to approximately
a. 35 percent of the male wage.
b. 50 percent of the male wage.
c. 98 percent of the male wage.
d. 110 percent of the male wage.
ANSWER: c. 98 percent of the male wage.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
610  Chapter 19/Earnings and Discrimination

Use the following information to answer question 164 through 166.

Billy works for the local piano moving company part-time after school. Billy has worked on the job for a couple of years
but still hasn’t received a wage increase, even though newer employees have received raises. Billy has threatened his
employer with a law suit if he doesn’t get a raise in the next few weeks. Billy believes he is a victim of labor-market
discrimination.

163. Which of the following statements would weaken Billy’s case against his employer?
a. Billy only works part-time and as a result has fewer hours of experience even though he has been with the
business longer.
b. Billy complains of lower back problems and as a result frequently gets the easy job of holding the doors open
while the movers carry the piano into the customer’s house.
c. The other employees have high-school diplomas and Billy does not.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

164. Why might an economist be skeptical of Billy’s discrimination complaint?

a. Through antitrust laws, discriminating firms can be penalized with large fees.
b. In a competitive market, employers pay employees based on their value to the firm.
c. Discrimination leads to profit maximization.
d. Only cost minimizers practice discrimination.
ANSWER: b. In a competitive market, employers pay employees based on their value to the firm.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

165. In a competitive market for piano movers, why might Billy’s wage differential persist?
a. Billy workers harder than the other employees.
b. Billy joins a labor union.
c. Billy’s amiable personality allows him to work well with his co-workers.
d. Customers do not like Billy because he has a bad attitude.
ANSWER: d. Customers do not like Billy because he has a bad attitude.
TYPE: M DIFFICULTY: 1 SECTION: 19.2

166. By definition, there is discrimination when the marketplace offers different opportunities to similar individuals who
differ only by
a. race, ethnic group, sex, age, or other personal characteristics.
b. qualifications, experience, or job preferences.
c. extent of human capital.
d. All of the above are correct.
ANSWER: a. race, ethnic group, sex, age, or other personal characteristics.
TYPE: M DIFFICULTY: 1 SECTION: 19.2

167. Which of these instances would be one of labor-market discrimination, given the definition of that term? Annette
receives a higher wage than Justin. Annette and Justin are identical in all of their labor-market characteristics except
that
a. Annette is a college graduate and Justin has only a high-school diploma.
b. Annette is a woman and Justin is a man.
c. Annette has 15 years of experience at her job; Justin has only five years of experience.
d. All of the above are correct.
ANSWER: b. Annette is a woman and Justin is a man.
TYPE: M DIFFICULTY: 1 SECTION: 19.2
 Chapter 19/Earnings and Discrimination  611

168. According to evidence provided by the U.S. government, the median black
a. woman is paid roughly the same as the median white woman.
b. woman is paid roughly the same as the median black man.
c. man is paid 22 percent less than the median white man.
d. All of the above are correct.
ANSWER: c. man is paid 22 percent less than the median white man.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

169. Given that the median male is better paid than the median female, which of the following cannot be ruled out as a
possible partial explanation?
a. compensating differentials
b. differences in human capital
c. discrimination
d. None of the above can be ruled out as a possible partial explanation.
ANSWER: d. None of the above can be ruled out as a possible partial explanation.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

170. Which of the following can be used to help explain wage differences among different groups of workers?
a. human capital acquired through education
b. human capital acquired through job experience
c. compensating differentials
d. All of the above are correct.
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

171. Regarding the possibility of labor-market discrimination, a consensus view among economists is that
a. all wage differences among groups are attributable to differences in human capital and compensating
differentials.
b. most wage differences among groups are attributable to discrimination.
c. wage differences among groups are not sufficient by themselves to determine how much discrimination there is.
d. many employers use compensating differentials to hide discriminatory practices.
ANSWER: c. wage differences among groups are not sufficient by themselves to determine how much discrimination
there is.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

172. In what way do competitive markets have a “natural remedy“ for discriminatory hiring practices?
a. Government naturally steps in to resolve problems of discrimination.
b. Profit-maximizing firms that do not discriminate tend to replace firms that discriminate.
c. Wages paid to groups that are victimized by discrimination are eventually bid up to above-equilibrium levels.
d. Discrimination is usually the outcome of rational decisionmaking processes, and competitive markets produce
rational outcomes.
ANSWER: b. Profit-maximizing firms that do not discriminate tend to replace firms that discriminate.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

173. If firms are competitive, then labor-market discrimination is

a. certain to be nonexistent in the short run and in the long run.
b. certain to be more of a problem than if the market were monopolistic or imperfectly competitive.
c. likely not to be a long-run problem unless customers exhibit discriminatory preferences or government
maintains discriminatory policies.
d. likely to be more of a problem in the long run than in the short run, due to the zero-profit condition that
characterizes long-run equilibrium for competitive firms.
ANSWER: c. likely not to be a long-run problem unless customers exhibit discriminatory preferences or government
maintains discriminatory policies.
TYPE: M DIFFICULTY: 3 SECTION: 19.2
612  Chapter 19/Earnings and Discrimination

174. A competitive market may be consistent with a discriminatory wage differential if

a. firms’ customers have discriminatory preferences.
b. the wage differential is, in fact, discriminatory, but it can be explained by a compensating differential.
c. the wage differential is, in fact, discriminatory, but it can be explained by differences in human capital.
d. All of the above are correct.
ANSWER: a. firms’ customers have discriminatory preferences.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

175. A study of segregated streetcars in the southern United States in the early twentieth century found that
a. before the passage of laws that mandated segregation of races on streetcars, segregation of smokers and
nonsmokers was more common than segregation of races.
b. firms that ran the streetcars were unanimous in their support of laws that required segregation of races.
c. firms that ran the streetcars were more interested in profits than in segregating customers by race.
d. firms that ran the streetcars were more interested in civil rights than in profits.
ANSWER: a. before the passage of laws that mandated segregation of races on streetcars, segregation of smokers and
nonsmokers was more common than segregation of races.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

176. The example of segregated streetcars in the southern United States in the early twentieth century is one example of
a. racial discrimination by firms, despite government efforts to halt it.
b. racial discrimination by firms, with no government action either to halt it or to support it.
c. government-mandated racial discrimination.
d. a failure to find any discrimination where most would expect to find it.
ANSWER: c. government-mandated racial discrimination.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

177. If there is systematic discrimination against a group of workers, then as a result, the wage paid to those workers
likely will be
a. lower, due to a higher supply of workers in that group.
b. lower, due to a lower demand for workers in that group.
c. higher, due to a lower supply of workers in that group.
d. higher, due to a higher demand for workers in that group.
ANSWER: b. lower, due to a lower demand for workers in that group.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

178. Studies of professional sports teams suggest that, in sports, racial discrimination is
a. rare.
b. common and that owners of teams are largely to blame.
c. common and that customers (fans) are largely to blame.
d. None of the above are correct; there are no reliable studies of discrimination in sports due to the difficulties
inherent in measuring athletes’ productivity.
ANSWER: c. common and that customers (fans) are largely to blame.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

179. If employers are profit-maximizers, then

a. competition will always eventually eliminate employment discrimination.
b. employment discrimination may persist if consumers discriminate.
c. employment discrimination will persist because it is always profitable.
d. compensating differentials will not exist.
ANSWER: b. employment discrimination may persist if consumers discriminate.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
 Chapter 19/Earnings and Discrimination  613

180. In the country of Amazonia, men and women have the same level of education and choose different forms of work
in the same proportions. The only real difference is that men typically stay home to raise the children. If no
discrimination exists, then we would expect that on average
a. men and women would earn the same wage.
b. men would earn more than women.
c. men would earn less than women.
d. any wage difference between men and women would be because of compensating differentials.
ANSWER: c. men would earn less than women.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

181. People who grew up in the western part of Aquilonia have an accent distinct from people who grew up in the
eastern part of the country. People from the west also receive lower wages than people from the east. From this
information alone, we can conclude that it is possible that
a. discrimination against people from the west exists.
b. discrimination against people from the east exists.
c. no discrimination exists.
d. All of the above are correct.
ANSWER: d. All of the above are correct.
TYPE: M DIFFICULTY: 3 SECTION: 19.2

182. In discussing discrimination and the wage differences that exist between men and women and between blacks and
whites, it has been said that “the disease is political even if the symptom is economic.” What does this mean?
a. Wage differences persist because the political system has failed to enact laws to equalize wages among all
groups.
b. Wage differences exist because of past discrimination on the part of political bodies such as city councils and
school boards.
c. Wage differences exist because of the differences in the political views of the different groups.
d. Wage differences exist because the political system is biased against paying compensating differentials.
ANSWER: b. Wage differences exist because of past discrimination on the part of political bodies such as city councils
and school boards.
TYPE: M DIFFICULTY: 2 SECTION: 19.2

183. Which of the following statements is FALSE?

a. It is possible that additional education will increase a worker’s wage without it increasing the worker’s
productivity.
b. If discriminating wage differentials persist in competitive markets, it is primarily because either consumers are
willing to pay to maintain the discrimination or because government mandates it.
c. Efficiency wages are the lower wages that nondiscriminating employers pay to workers who discriminating
employers won’t hire.
d. In competitive markets, workers are paid a wage equal to the value of their marginal product.
ANSWER: c. Efficiency wages are the lower wages that non-discriminating employers pay to workers who
discriminating employers won’t hire.
TYPE: M DIFFICULTY: 2 SECTION: 19.2
614  Chapter 19/Earnings and Discrimination

184. Consumers suddenly prefer to do business with left-handed workers instead of right-handed workers. We would
expect that the marginal revenue product of
a. left-handed workers would rise, which would increase the demand for left-handed workers. This will increase
the number of left-handed workers employed, which will in turn increase the marginal product of left-handed
workers.
b. left-handed workers would rise, which would increase the demand for left-handed workers. This will increase
the number of left-handed workers employed, which will in turn reduce the marginal product of left-handed
workers.
c. right-handed workers would rise, which would increase the demand for right-handed workers. This will
increase the number of right-handed workers employed, which will in turn increase the marginal product of
right-handed workers.
d. right-handed workers would fall, which would reduce the demand for right-handed workers. This will reduce
the number of right-handed workers employed, which will in turn reduce the marginal product of right-handed
workers.
ANSWER: b. left-handed workers would rise, which would increase the demand for left-handed workers. This will
increase the number of left-handed workers employed, which will in turn reduce the marginal product
of left-handed workers.
TYPE: M DIFFICULTY: 3 SECTION: 19.2

185. Consumers suddenly prefer to do business with left-handed workers instead of right-handed workers. We would
expect that the marginal revenue product of
a. left-handed workers would rise, which would increase the demand for left-handed workers. This will increase
the number of left-handed workers employed, which will in turn increase the marginal product of left-handed
workers.
b. left-handed workers would fall, which would decrease the demand for left-handed workers. This will decrease
the number of left-handed workers employed, which will in turn reduce the marginal product of left-handed
workers.
c. right-handed workers would rise, which would increase the demand for right-handed workers. This will
increase the number of right-handed workers employed, which will in turn increase the marginal product of
right-handed workers.
d. right-handed workers would fall, which would reduce the demand for right-handed workers. This will reduce
the number of right-handed workers employed, which will in turn increase the marginal product of right-
handed workers.
ANSWER: d. right-handed workers would fall, which would reduce the demand for right-handed workers. This will
reduce the number of right-handed workers employed, which will in turn increase the marginal product
of right-handed workers.
TYPE: M DIFFICULTY: 3 SECTION: 19.2

TRUE/FALSE

1. As a result of an increase in the earnings gap between skilled and unskilled jobs, the incentive to get a college
education has been declining.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.1

2. The rising gap in wages between unskilled and skilled workers is most likely related to a larger increase in demand
for unskilled occupations relative to skilled occupations.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.1

3. One hypothesis to explain the rising gap in wages between unskilled and skilled workers is that international trade
has altered the relative demand for skilled and unskilled workers.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.1

4. An effective minimum wage law will increase the quantity of labor demanded.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.1
 Chapter 19/Earnings and Discrimination  615

5. Efficiency wages will raise the quantity of labor supplied to the market.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.1

6. Labor unions will raise the quantity of labor demanded.

ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.1

7. The neoclassical theory of the labor market suggests that wages are governed by labor supply and labor demand.
ANSWER: T TYPE: TF DIFFICULTY: 1 SECTION: 19.1

8. A compensating differential refers to a difference in wages that arises from nonmonetary characteristics.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.1

9. The fact that doctors are paid more than professors is an example of a compensating differential.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.1

10. A computer is an example of productivity enhancing human capital.

ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.1

11. The statement that "the rich get richer, and the poor get poorer" is supported by evidence of an expanding wage gap
between high-skill and low-skill workers.
ANSWER: T TYPE: TF DIFFICULTY: 1 SECTION: 19.1

12. Some economists suggest that international trade has led to an expanding wage gap between high-skill and low-skill
workers.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.1

13. It is increasingly clear that technological change, rather than international trade, has been largely responsible for an
expanding wage gap between high-skill and low-skill workers.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.1

14. Empirical evidence suggests that ability, effort, and chance are not likely to be significant contributors to wage
differences.
ANSWER: F TYPE: TF DIFFICULTY: 1 SECTION: 19.1

15. Discrimination is a reflection of some people’s prejudice against certain groups in society.
ANSWER: T TYPE: TF DIFFICULTY: 1 SECTION: 19.2

16. Differences in human capital among groups of workers is possibly a reflection of discrimination.
ANSWER: T TYPE: TF DIFFICULTY: 1 SECTION: 19.2

17. When differences in human capital among workers lead to discrimination it is typically a result of social or political
processes rather than economic processes.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.2

18. When comparing average wages for black and white workers in the United States, wages paid to black workers have
been about 20 percent less than those paid to white workers.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.2

19. When comparing average wages for male and female workers in the United States, wages paid to females have been
about 40 percent less than those paid to male workers.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.2

20. Politicians often point to average wage differentials as evidence of labor market discrimination against ethnic
minorities and women; however, economists argue against this approach because they don’t trust any of the
statistics quoted by the politicians.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.2
616  Chapter 19/Earnings and Discrimination

21. Politicians often point to wage differentials as evidence of labor market discrimination against ethnic minorities and
women; however, economists argue against this approach because people differ in the kinds of work they are
willing and able to do.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.2

22. Economists would argue that the gender wage gap is narrowing because of efficiency wages.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.2

23. Discrimination is an emotionally charged issue that is impossible to study objectively.

ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.2

24. All differences in wages that are not accounted for by differences in human-capital investment are likely to be a
result of discrimination.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.2

25. In a labor market free from discrimination, wages for workers that are employed by the same company will still
differ.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.2

26. Evidence of discrimination is most apparent when one compares wages among broad groups.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.2

27. When discrimination occurs as a result of prejudice, market solutions are typically not viable.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.2

28. Consumers are often a primary source of discrimination in labor markets.

ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.2

29. Profit-maximizing competitive firms will not discriminate in the hiring of workers unless consumers exercise a
preference for discrimination in product markets.
ANSWER: T TYPE: TF DIFFICULTY: 2 SECTION: 19.2

30. Government policies and programs have been very successful in reducing evidence of discrimination in labor
markets.
ANSWER: F TYPE: TF DIFFICULTY: 2 SECTION: 19.2

SHORT ANSWER

1. Evaluate the following statement: "The market for public school teachers is clearly inefficient; if teachers were paid
the value of marginal product, wages would be much higher."
ANSWER: The "value" in value of marginal product does not infer a connotation of social value. Rather it implies that
people are paid according to the economic value they contribute to society. The contribution of teachers is very
difficult to objectively measure, As such there may be a perception by some that teachers are underpaid. Others may
perceive that teachers are overpaid.
TYPE: S DIFFICULTY: 2 SECTION: 19.1

2. Explain the theory that education acts as a signaling device. How does this contrast with the theory of education as
an investment in human capital?
ANSWER: The theory of signaling suggests that those who have desirable "productivity" characteristics are more likely to
finish education programs. The human capital theory suggests that productivity characteristics are enhanced by the
learning that takes place in formal educational programs.
TYPE: S DIFFICULTY: 2 SECTION: 19.1
 Chapter 19/Earnings and Discrimination  617

3. A recent study of the determinants of wages for clerical staff at a state university found that years of schooling, years
of experience, age and job characteristics only explained about one-half of the difference in wages. Describe other
factors that may be important in explaining wages differences for clerical staff. From your answer, explain how you
would measure these factors for use in empirical analysis.
ANSWER: Others may include gender, job tenure, job responsibilities, etc. Gender can be measured using a dummy
variable, job tenure can be measured in years (or months) and job responsibilities can be measured on a numerical
scale.
TYPE: S DIFFICULTY: 2 SECTION: 19.1

4. The National Collegiate Athletic Association has long argued that nationally prominent college athletes are
compensated with an investment in human capital that far exceeds the monetary reward of playing professional
sports. Examine this argument in light of your knowledge of human capital theory and the neoclassical theory of
labor markets.
ANSWER: Most economists would argue that the NCAA is the most exploitative organization in the United States
considering the value that star student athletes contribute to a university. Most would argue that the education that
star student athletes receive is of little value in playing professional sports.
TYPE: S DIFFICULTY: 2 SECTION: 19.1

5. After graduating from college, you receive job offers from five different accounting firms. All job offers have a
different compensation package. Is it irrational for you to accept an offer that doesn't provide the highest level of
monetary compensation? Use the concept of compensating differentials to explain your answer.
ANSWER: Compensating differentials in the text are used to refer to differences in job characteristics across different
occupations. But it can also lead to differences in job characteristics within an occupation. Such considerations may
include geographic location and quality of life issues associated with a particular job offer.
TYPE: S DIFFICULTY: 2 SECTION: 19.1

6. List the productivity factors that may explain the difference in pay between men and women in similar occupations.
Do any of these factors arise as a result of cultural or social traditions? If so, describe how changes in social
relationships will affect the pay gap over time.
ANSWER: Job experience, education, lifetime patterns of work experience, etc. The gap should narrow as the cultural and
social barriers to female access to productivity enhancing experiences are reduced.
TYPE: S DIFFICULTY: 2 SECTION: 19.2

7. Explain the role of job experience in explaining the difference between the average wages of men and women.
ANSWER: Women, who have primary responsibility for home production and child rearing typically have less continuity
in the labor force. As such, there is a difference in the average job experience between men and women.
TYPE: S DIFFICULTY: 2 SECTION: 19.12

8. Explain the role of compensating differentials in explaining the difference between the average wages of men and
women.
ANSWER: Men and women have traditionally selected different career paths. Men tend to be more concentrated in jobs
that have less desirable working conditions. If this is so, compensating differentials can explain some of the
difference in wages between men and women.
TYPE: S DIFFICULTY: 2 SECTION: 19.2

9. Explain the role consumers play in perpetuating discrimination in labor markets.

ANSWER: Consumers are able to exercise their biases through considering the human element of a transaction as part of
the "satisfaction" derived from participating in a market. As such, their willingness to pay to exercise their bias spills
over into seller preferences for hiring. This is demonstrated by a simple example of most women preferring to have
their hair cut by women. This "bias" is a form of consumer-perpetuated discrimination.
TYPE: S DIFFICULTY: 2 SECTION: 19.2
618  Chapter 19/Earnings and Discrimination

10. Evaluate the following statement: "The gender pay gap provides evidence of widespread, severe, ongoing
discrimination by employers and fellow workers."
ANSWER: There are many explanations of the gender pay gap. Some are associated with discrimination both by
consumers and employers, others are associated with differences in productivity.
TYPE: S DIFFICULTY: 2 SECTION: 19.2

11. In a recent U.S. presidential campaign, a lobbyist for a prominent national women's organization made the claim
that women in the United States earn $0.60 for every $1.00 earned by a man. A reporter, who was prepared for this
statement, asked the lobbyist why wages paid to the organization's secretarial staff (all of whom were women) were
significantly below the national average if they were truly interested in raising the rates of compensation for women.
If you were the lobbyist, how would you have answered this question? Do you think your answer is convincing?
Explain.
ANSWER: The lobbyist would likely respond with things that explain wage differences on the basis of compensating
differentials, education, and job experience. These arguments would be convincing to those who subscribe to the
marginal productivity theory of compensation, but not to those who subscribe to theories that use subjective
measures of valuation.
TYPE: S DIFFICULTY: 2 SECTION: 19.2