CEA Labor Economics and Human Capital

Question 1

According to human capital theory, what is the primary reason workers with more education tend to earn higher wages?

Accepted Answer

They have acquired skills and knowledge that increase their productivity

Answer

Human capital theory, developed by Becker and Mincer, holds that education raises earnings by increasing worker productivity, not merely through signaling or protection.

Question 2

Efficiency wage theory suggests that firms pay workers above the market-clearing wage primarily because:

Accepted Answer

Higher wages reduce shirking, lower turnover, and increase worker productivity

Answer

Efficiency wage theory holds that above-equilibrium wages motivate workers to avoid dismissal, reduce costly turnover, and attract higher-quality applicants.

Question 3

A monopsony in the labor market is best characterized by:

Accepted Answer

A single dominant employer with the ability to set wages below the competitive level

Answer

A monopsonist faces an upward-sloping labor supply curve, allowing it to set wages below the competitive equilibrium and employ fewer workers than the socially optimal level.

Question 4

The Mincer earnings equation estimates wages primarily as a function of:

Accepted Answer

Years of schooling, years of work experience, and experience squared

Answer

Jacob Mincer's foundational equation regresses log wages on years of schooling, experience, and experience-squared to capture the concave earnings-experience relationship.

Question 5

Compensating wage differentials arise when:

Accepted Answer

Workers receive higher wages to offset undesirable job characteristics such as danger or instability

Answer

Compensating differentials equalize total job attractiveness; workers in hazardous, unpleasant, or unstable jobs command wage premiums that offset the non-monetary costs.

(CEA) Certified Economic Analyst Practice Test

(CEA) Certified Economic Analyst Practice Test

CEA Labor Economics and Human Capital