Ch 20

Question 1

Trend 1

Answer 1

Industrialized countries have enjoyed real wage growth in the 20th century

Question 2

Trend 2

Answer 2

The rate of real wage growth has stagnated since 1973
Fastest during the 1960s and early 1970s
The number of people with jobs and the percent of the population employed has substantially increased

Question 3

Trend 3

Answer 3

Increased wage inequality in U.S

Question 4

Between 1970s and 2016

Answer 4

Average real weekly earnings of workers at the low end of the income distribution decreased
Real wages of the least-skilled, least-educated workers decreased 25 to 30%
Best-educated, highest-skilled workers’ real wages increased

Question 5

Trend 4

Answer 5

The number of people with jobs has grown in the past 50 years
Rate of job growth has slowed recently

Question 6

Trend 5

Answer 6

Western Europe has suffered higher unemployment than the USA
Unemployment in France from 1990-2001 was 10.9% vs. 5.5% in the USA
In 2017, 4.4% in USA vs. 9.8% in France

Question 7

The demand for labor depends upon:

Answer 7

The productivity of workers
Greater productivity increases employment
The price of the worker’s output
A higher real price increases employment

Question 8

Diminishing returns to labor

Answer 8

Assumes non-labor inputs are held constant

Adding one worker increases output but by less than the previous worker added

Question 9

Value of Marginal Product (VMP)

Answer 9

is extra revenue that an added worker generates

Question 10

Shifting Demand for Labor

Answer 10

Demand shifts when the value of the marginal product of a worker changes

Question 11

Two factors determine the demand (VMP) for labor

Answer 11

The price of the company’s output
    An increase in market demand
The productivity of the workers
  Greater quantity of non-labor inputs
  Organizational change
  Training and education

Question 12

Reservation wage

Answer 12

is the lowest wage a worker would accept for a given job
Opportunity cost of working is your leisure activity
Work compensates you for lost leisure
Cost – Benefit Principle at work: take the job if the benefit (the pay) exceeds the reservation wage (the cost of working)

Question 13

People work for many reasons:

Answer 13

Personal satisfaction
Opportunity to develop skills and talents
Chance to socialize with co-workers

Question 14

Still, for most people, income is one of the principal benefits of working

Answer 14

The higher the real wage, the more willing they are to sacrifice other possible uses of their time

Question 15

Aggregate Labor Supply

Answer 15

The fact that people are more willing to work when the wage they are offered is higher is captured in the upward slope of the supply curve of labor

Question 16

Macroeconomic determinants of labor supply

Answer 16

Size of the working age population
Domestic birthrate
Immigration and emigration
Ages when people enter and retire from the workforce
Share of working-age population willing to work

Question 17

A shift in labor supply is caused by any change in the number of workers willing to work at each wage

Answer 17

Increase in the working-age population
Baby Boom
Higher net immigration
Increasing age at retirement
Increase in the share of working-age population willing to work
Women’s participation in the labor force has increased in the last 50 years

Question 18

Trend 1: Increasing Real Wages

Answer 18

Industrialized countries have had sustained growth in productivity in the 20th century
Increases demand for labor
Both real wages and employment increased

Question 19

Trend 2: Stagnated Wage Growth Since 1970

Answer 19

Stagnated growth in real wages could be either
Slower growth in demand for labor OR
Faster growth in the supply of labor
Productivity growth and real wages move together

Question 20

Trend 3: Increased Wage Inequality in U.S.

Answer 20

Globalization results in an expansion of many markets to worldwide supply
Increasing ease of goods and services crossing national borders
Benefit of globalization is increased specialization and efficiency
Principle of Comparative Advantage
Globalization also means that some goods produced domestically are no longer competitive
Some domestic sectors shrink

Question 21

Frictional unemployment

Answer 21

occurs when workers are between jobs, i.e. matching workers with jobs
Short duration, low economic cost
May increase economic efficiency by a better match

Question 22

Cyclical unemployment

Answer 22

is the increase in unemployment during economic slow-downs
Usually short duration
Economic cost is the decline in real GDP

Question 23

Structural unemployment

Answer 23

is long-term, chronic unemployment in a well-functioning economy
Lack of skills, language barriers, or discrimination
Structural shifts in production create a long-term mismatch between workers and market needs
Barriers to employment such as
■ Minimum wages ■ Unions
■ Unemployment Insurance
High economic, psychological, and social costs
Example: U.S. steel declines, rise in software industry

Question 24

Labor union benefits

Answer 24

Reduced worker exploitation
Improved job security
Increase productivity
Promote democracy in the workplace

Question 25

Labor union costs

Answer 25

Introduces inefficiency into competitive markets May keep companies from competing globally (cost of wage increases, inflexible work rules) Hard workers are devalued

Question 26

Unemployment insurance is a government transfer to unemployed workers

Answer 26

Helps to reduce the costs of unemployment | May give the unemployed an incentive to search longer and less intensely

Question 27

To work efficiently, unemployment benefits should be

Answer 27

For a limited time | Less than the income received when working

Question 28

Health and safety regulations can reduce the demand for labor by

Answer 28

Increasing employer costs | Reducing productivity

Question 29

Structural rigidities explain persistently high rates

Answer 29

Highly regulated labor markets High minimum wages Generous unemployment benefits Powerful labor unions