Labor Economics Flashcards

Which concept describes the wage premium workers receive for accepting jobs with higher risk of injury or death?

Answer: Compensating differential

Compensating differentials are wage premiums that offset undesirable job characteristics such as physical danger.

The labor force participation rate is calculated as the labor force divided by:

Answer: Working-age population

The LFPR equals the labor force (employed + actively seeking work) divided by the civilian noninstitutional population aged 16+.

Under a perfectly competitive labor market, a firm's optimal hiring rule is to employ workers until:

Answer: Marginal revenue product equals the market wage

Profit maximization requires hiring until MRP = W, because any additional worker beyond this point costs more than they produce.

A decrease in the price of a complement to labor (e.g., machinery that works alongside workers) will most likely:

Answer: Increase labor demand

Cheaper complementary inputs raise labor's marginal productivity, shifting the labor demand curve rightward.

Which theory of wage determination holds that wages reflect the marginal revenue product of labor in competitive markets?

Answer: Marginal productivity theory

Marginal productivity theory states that in competitive equilibrium wages equal the value of the marginal product of labor.

The reservation wage is best defined as:

Answer: The wage below which a worker will not accept employment

A worker's reservation wage is the lowest wage offer they would accept, making them indifferent between working and not working.

If the own-wage elasticity of labor demand is −0.4, a 10% increase in wages will reduce employment by approximately:

Answer: 4%

Elasticity of −0.4 means a 10% wage increase causes a 0.4 × 10% = 4% employment decline.