CEA Labor Economics and Human Capital 2

Question 1

Structural unemployment occurs when:

Accepted Answer

There is a persistent mismatch between workers' skills and the requirements of available jobs

Answer

Workers temporarily leave jobs to search for better-paying opportunities

Answer

Aggregate demand falls below the full-employment level of output

Answer

Seasonal fluctuations temporarily reduce demand for certain types of labor

Question 2

The 'discouraged worker effect' describes individuals who:

Accepted Answer

Stop actively searching for work because they believe no suitable jobs are available

Answer

Accept lower wages because they have weak bargaining power

Answer

Reduce on-the-job effort when facing credible layoff threats

Answer

Retire early in response to deteriorating labor market conditions

Question 3

The insider-outsider theory of wage determination proposes that:

Accepted Answer

Currently employed workers (insiders) use bargaining power to maintain above-market wages at the expense of job seekers (outsiders)

Answer

Wages are set purely by external market forces of labor supply and demand

Answer

Wages reflect bilateral monopoly bargaining between unions and monopsonistic employers

Answer

Labor markets clear instantly through perfectly flexible nominal wage adjustment

Question 4

Regarding on-the-job training, human capital theory predicts that:

Accepted Answer

General training costs are borne by workers while firm-specific training costs are shared between workers and employers

Answer

All training costs are fully funded by the government to reduce skill gaps

Answer

Employers fund all training — both general and firm-specific — to maximize retention

Answer

Workers bear all training costs regardless of whether skills are general or firm-specific

Question 5

Skill-biased technological change (SBTC) is primarily associated with:

Accepted Answer

Rising wage inequality as technology increases relative demand for high-skilled labor

Answer

Declining returns to education as machines increasingly replace skilled workers

Answer

Equal productivity gains for all workers regardless of education or skill level

Answer

Reduction in structural unemployment through automation replacing routine tasks

Question 6

Frictional unemployment is best described as:

Accepted Answer

Short-term, voluntary unemployment arising from the normal job search and matching process

Answer

Unemployment caused by an economic recession reducing aggregate demand for labor

Answer

Long-term joblessness due to workers' skills becoming technologically obsolete

Answer

Unemployment resulting from predictable seasonal variation in labor demand

Question 7

A binding minimum wage set above the competitive equilibrium wage will, in a standard competitive labor market, most likely result in:

Accepted Answer

A surplus of labor (unemployment) as quantity of labor supplied exceeds quantity demanded

Answer

Increased employment as firms expand production to meet consumer demand

Answer

No change in employment if workers have strong non-wage preferences for the job

Answer

Higher wages for all workers, including those in unaffected skill tiers