CEA Labor Economics and Human Capital 3

Question 1

Dual labor market theory divides the economy's labor market into:

Accepted Answer

A primary segment with stable, high-wage jobs and a secondary segment with unstable, low-wage jobs

Answer

Doeringer and Piore's dual labor market theory distinguishes a primary market (stable jobs, internal promotion ladders, high wages) from a secondary market (dead-end, low-wage, high-turnover jobs).

Question 2

Job search theory, as developed by Stigler and Mortensen, predicts that unemployed workers will:

Accepted Answer

Set a reservation wage and continue searching until they receive an offer meeting that threshold

Answer

Search theory models workers as rational agents who set a reservation wage and sample from the wage offer distribution, balancing search costs against the expected benefit of a better offer.

Question 3

The Beveridge curve illustrates the relationship between:

Accepted Answer

The unemployment rate and the job vacancy rate across the business cycle

Answer

The Beveridge curve plots vacancies against unemployment; an outward shift signals reduced matching efficiency or increased structural mismatch in the labor market.

Question 4

Implicit contract theory in labor economics explains wage rigidity by arguing that:

Accepted Answer

Risk-averse workers accept stable wages as implicit insurance from employers who absorb income variation

Answer

Azariadis and Baily showed that firms act as insurers for risk-averse workers, offering stable wages in exchange for a lower average wage than fully flexible contracts would yield.

Question 5

In labor economics, 'labor hoarding' refers to the practice whereby:

Accepted Answer

Firms retain excess workers during economic downturns to avoid dismissal and rehiring costs

Answer

Labor hoarding occurs when the fixed costs of layoffs, severance, and future rehiring/retraining exceed the short-run wage savings from reducing headcount.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Labor Economics and Human Capital 3