MEcon Master of Economics Labor Economics and Human Capital

Question 1

Human capital theory, associated with Gary Becker, views investment in education as:

Accepted Answer

An investment that raises productivity and lifetime earnings

Answer

Human capital theory treats education and training as investments that enhance worker productivity, raising wages commensurate with the skills acquired.

Question 2

Signaling theory (Spence) argues that education's primary labor market role may be to:

Accepted Answer

Signal innate ability to employers who cannot observe it directly

Answer

Spence's signaling model holds that if high-ability workers can obtain credentials more cheaply, education serves as a credible signal of pre-existing ability, even with no productivity effect.

Question 3

The compensating wage differential theory predicts that jobs with higher risk or less desirable conditions will pay:

Accepted Answer

Higher wages to compensate workers for undesirable attributes

Answer

Compensating differentials are wage premiums required to attract workers to less desirable jobs; they reflect worker valuations of job characteristics in a competitive labor market.

Question 4

The natural rate of unemployment includes:

Accepted Answer

Frictional and structural unemployment but not cyclical unemployment

Answer

The natural rate (NAIRU) is the unemployment consistent with stable inflation, comprising frictional unemployment (job search) and structural unemployment (skill-job mismatches), but excluding cyclical unemployment.

Question 5

Monopsony in labor markets results in:

Accepted Answer

Wages below the competitive level and employment below the efficient level

Answer

A wage-setting monopsonist faces an upward-sloping labor supply curve, leading it to restrict hiring to keep wages down — resulting in both lower wages and underemployment relative to a competitive market.

MEcon Master of Economics Practice Test

MEcon Master of Economics Practice Test

MEcon Master of Economics Labor Economics and Human Capital