Topic 6: Screening in the Labour Market

Question 1

Our objective is to examine what happens in the labour markets when employers cannot observe workers’ ……….. levels

Answer 1

productivity

Question 2

We shall see that the resulting equilibria reduce the welfare of the high productivity worker ……. that which they could achieve in a full information world

Answer 2

below

Question 3

Indifference curve (IC) for the low type is …….. than the one for the high type (since al>ah)

Answer 3

steeper

Question 4

Cost Per unit of education is ……….. for the low type, so they will need a bigger increase in wages to compensate for acquiring a given level of education than the high types.

Answer 4

higher

Question 5

If R is above the market average productivity line, contracts at R will give ………… profits to the firm

Answer 5

negative

Question 6

When there are many high productivity agents, there is …. incentive to education.

Answer 6

less

Question 7

When there are many low productivity agents, there is …. incentive to get educated

Answer 7

more

Question 8

The separating equilibrium will exist when the average productivity is ….

Answer 8

low (when there are many low productivity type workers)

Question 9

If we start from a pooling contract we can ……. find a cream skimming contract that can attract the high types.

ALWAYS / NEVER

Answer 9

Always