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Table of Contents

  1. Chapter Eleven: The Labour Market

Chapter Eleven: The Labour Market

1
Question 1

Select the one answer here that does not apply. It may be profit enhancing to pay an efficiency wage (a wage that is higher than the minimum necessary to attract job applicants) because:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) The efficiency wage lowers the average productivity of workers.Your answer has been saved.
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2
Question 2

"Adverse selection" can be a problem in markets in which:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) Pricing or selection strategy may generate poor quality applicants (in case of labour markets) or riskier-than-average customers (in the case of insurance).Your answer has been saved.
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3
Question 3

"Moral hazard" applies to the phenomenon where:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is c) Behaviour of some agents changes as a result of the contract or transaction involved.Your answer has been saved.
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4
Question 4

A monopsony is:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) A market in which there is only one buyer, or the buyer exerts significant price setting power.Your answer has been saved.
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5
Question 5

In a market where there is a single profit maximizing monopsonist who faces a competitive supply curve of inputs and pays a single price for all purchased inputs:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is d) The outcome will involve a lower wage and lower employment than under competitive market conditions.Your answer has been saved.
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6
Question 6

A monopsonist that can pay a different price for each input (that is a discriminating monopsonist) will:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) Hire more inputs and make more profit than in the case where all inputs receive the same price.Your answer has been saved.
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7
Question 7

The principal-agent problem arises in situations where:

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is a) Responsibility for some key decisions is delegated and performance cannot be completely monitored.Your answer has been saved.
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8
Question 8

Which of the following is not associated with internal labour markets?

a)
b)
c)
d)
e)
Correct.Incorrect. The answer is e) Each worker will be paid his/her marginal product at each stage of the career ladder.Your answer has been saved.
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9
Question 9

What factors make it difficult for some people to move between labour markets?

Hint: Re-read the major section 'Wage differentials' pp230-40. Consider the significance of these potential barriers for different types of work (e.g. how easy is it for an electrician to become a brain surgeon and vice versa and alternatively for a supermarket shelf stacker to be a check-out operator).Hint

10
Question 10

Given that the acquisition of human capital adds to an individual's earning potential, why might some people choose not to undertake additional education?

Hint: Re-read the section 'Differentials arising from human capital' pp230-34.Hint

11
Question 11

For each of the following occupations, give examples of what might be considered to be general training and specific training

(a) nursing
(b) teaching
(c) professional sportsperson
(d) financial consultancy

Hint: Re-read the section 'On the job training' p232-34.Hint

12
Question 12

Why might firms adopt a pay structure in which more senior positions are paid significantly more than jobs immediately below them on the job ladder? Should this approach apply to all jobs within a firm? If not, why not?

Hint: Re-read the section 'On the job training' pp232-34. The rationale behind such an approach is addressed in a branch of the literature known as 'Tournament Theory' where the 'winner' of a round of job interviews for a more skilled job receives significantly higher wage remuneration as a 'prize'. This is discussed later on page 244.Hint

13
Question 13

Give a list of reasons why women (on average) earn less than men?

Hint: Re-read the section 'Differentials arising from sex and race' pp 234-36, including Box 11.2. To help answer the question, consider two children, one boy, one girl, both aged three. At what points in their life might they be treated differently from each other such that they might end up being paid different wages?Hint

14
Question 14

To what extent do the issues you have raised in your answer to question 5 explain why workers of different race/nationalities might expect to be treated differently in the labour market with respect to remuneration and job advancement?

Hint: you may wish to undertake a similar exercise to that used to answer question 5.Hint

15
Question 15

What is the difference between saying that a firm is a monopolist and saying that it is a monopsonist?

Hint: Re-read the section 'Differentials arising from labour market structures' focusing in particular on 'Case 2' and 'Case 3' on p237. You may also wish to look back at Chapter Eight.Hint

16
Question 16

What is the impact of workers choosing to negotiate with their employer via a trade union rather than individually?

Hint: Re-read the section 'The determination of wages with unions' pp237-39.Hint

17
Question 17

Comment on the following statement: 'All we need is an effective minimum wage policy if poverty is to be defeated'.

Hint: Re-read the section 'Minimum wage laws' pp239-40. In answering the question you might want to consider who gains, who loses and who is unaffected by the introduction of a national minimum wage. You may also wish to read Case Study 3 pp246-47.Hint

18
Question 18

Why is adverse selection problematic for the insurance industry? Explain how companies that offer private health insurance can try to differentiate between individuals seeking to take out insurance. Can firms seeking to fill vacancies use the same approach?

Hint: Re-read the section 'Adverse selection' p241.Hint

19
Question 19

In what ways can insurance companies address the problem of moral hazard?

Hint: Re-read the section 'Moral hazard' p241. Initially, you may wish to consider how an individual might behave if s/he knew that an insurance company is completely incapable of checking the validity of claims made against her/his motor or household policy.Hint

20
Question 20

To what extent can it be argued that the principal agent problem arises because of the difficulties of the firm not being able to specify each worker's contract appropriately?

Hint: Re-read the section 'Costly monitoring' pp241-42. In answering the question, you may also want to think about the different types of moral hazard that exist in the work-place. Consider also the implications of (for example) a firm seeking to maximise profit by offering its managers additional remuneration based on sales. Hint

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Question 21

Re-read Chapter Eleven and consider why the labour market for sports stars differs from that pertaining to other jobs such as fire-fighters, accountants and shop assistants.

Hint: Re-read Case Study 1. Consider, for example, whether it is easier to measure the productivity of sports stars compared with other jobs; are there information asymmetries in sports players' labour markets? how sports stars earn their money (you may wish to compare team sports, such as football, with individual sports, such as tennis); how sports stars acquire human capital; the potential for discrimination in sport etc. Hint