MEcon Master of Economics Labor Economics and Human Capital 2 — Questions and Answers
Question 1: The returns to schooling estimated by Jacob Mincer's earnings equation represent:
- The social return to public education spending
- The private wage return per additional year of schooling (Correct answer)
- The productivity gain from government training programs
- The correlation between parental income and children's education
Correct answer: The private wage return per additional year of schooling
The Mincerian earnings equation regresses log wages on years of schooling and experience, with the schooling coefficient capturing the average percentage increase in earnings per additional school year.
Question 2: Labor force participation rate is calculated as:
- Employed / Total population
- (Employed + Unemployed) / Working-age population (Correct answer)
- Employed / Working-age population
- Unemployed / Employed
Correct answer: (Employed + Unemployed) / Working-age population
The labor force participation rate equals the labor force (employed plus unemployed actively seeking work) divided by the civilian non-institutional working-age population.
Question 3: According to the job search model, a higher unemployment insurance benefit tends to:
- Reduce unemployment duration
- Raise unemployment duration by increasing reservation wages (Correct answer)
- Have no effect on job search behavior
- Lower wages in the economy
Correct answer: Raise unemployment duration by increasing reservation wages
Higher UI benefits raise the reservation wage (the minimum acceptable wage offer), leading unemployed workers to search longer before accepting a job, extending unemployment duration.
Question 4: Collective bargaining by unions typically raises wages for union members primarily through:
- Increasing productivity of union workers directly
- Exercising monopoly power over labor supply in covered sectors (Correct answer)
- Reducing the number of workers employed
- Competing with non-union firms on quality
Correct answer: Exercising monopoly power over labor supply in covered sectors
Unions act as a monopoly seller of labor, setting wages above the competitive level through collective negotiation backed by the threat of strikes and withdrawal of labor.
Question 5: The gender wage gap adjusted for occupation, hours, and experience is sometimes called the:
- Raw wage gap
- Unexplained wage gap or residual gap (Correct answer)
- Human capital gap
- Compensating differential
Correct answer: Unexplained wage gap or residual gap
After controlling for observable productivity factors, the residual gap measures unexplained differences potentially attributable to discrimination, unmeasured skills, or cultural factors.
Question 6: Immigration's effect on native wages in a standard competitive model depends primarily on whether immigrants and native workers are:
- From the same country of origin
- Complements or substitutes in production (Correct answer)
- Legal or undocumented
- Employed in unionized or non-union sectors
Correct answer: Complements or substitutes in production
If immigrants and natives are substitutes (doing the same jobs), immigration increases labor supply and compresses native wages; if they are complements, immigration can raise native wages.
MEcon Master of Economics Labor Economics and Human Capital 2
The returns to schooling estimated by Jacob Mincer's earnings equation represent: