Earnings and Discrimination 4903
11. The human-capital theory of education maintains that workers who complete specific levels of
education enhance their productivity through education.
a. True
b. False
12. Human capital refers to the physical tools and equipment that workers use on their jobs to
enhance their productivity.
a. True
b. False
13. John has financial assets totaling $1.5 million, and he plans to use these assets to start his own
business. Since John owns these funds and will not need to borrow to start his business, these
assets are considered human capital.
a. True
b. False
4904 Earnings and Discrimination
14. As a result of an increase in the earnings gap between skilled and unskilled jobs, the incentive to
get a college education has been declining.
a. True
b. False
15. The changing gap in wages between unskilled and skilled workers is most likely related to a larger
increase in demand for unskilled occupations relative to skilled occupations.
a. True
b. False
16. One hypothesis to explain the changing gap in wages between unskilled and skilled workers in the
United States is that international trade has altered the relative demands for skilled and unskilled
workers.
a. True
b. False
Earnings and Discrimination 4905
17. Over the past 30 years, the number of jobs in the United States requiring skilled labor has been
declining as foreign countries steal these jobs away from the U.S. As a result, the domestic
demand for skilled labor has been falling and the wage gap between skilled and unskilled labor
has been narrowing.
a. True
b. False
18. The statement that “the rich get richer, and the poor get poorer” is supported by evidence of an
expanding wage gap between high-skill and low–skill workers.
a. True
b. False
19. Some economists suggest that increased international trade with countries that have a greater
proportion of unskilled workers has led to an expanding wage gap between high-skill and low–
skill workers in the United States.
a. True
b. False
4906 Earnings and Discrimination
20. It is increasingly clear that technological change is the only explanation for an expanding wage
gap between high- skill and low–skill workers.
a. True
b. False
21. Empirical evidence suggests that ability, effort, and chance are not likely to be significant
contributors to wage differences.
a. True
b. False
22. Since measurable factors such as years of experience and years of education explain less than
half of the variation in wages, ability, effort, and chance must play a significant role in determining
wages.
a. True
b. False
Earnings and Discrimination 4907
23. Sometimes workers earn higher wages through chance.
a. True
b. False
24. One reason why better-looking workers may have higher earnings is that physical attractiveness
may enhance a worker’s productivity for certain jobs, especially for those workers who deal with
the public.
a. True
b. False
25. One reason why better-looking workers may have higher earnings is that physical attractiveness is
correlated with intelligence.
a. True
b. False
4908 Earnings and Discrimination
26. The signaling theory of education maintains that workers who complete specific levels of
education signal their high productivity to potential employers.
a. True
b. False
27. The signaling theory of education maintains that workers who complete specific levels of
education enhance their productivity through education.
a. True
b. False
28. The signaling theory of education suggests that when people earn a college degree they do not
become more productive, but they do signal their high ability to prospective employers.
a. True
b. False
Earnings and Discrimination 4909
29. A manager of a small firm who believes in the signaling theory of education would encourage her
employees to obtain additional education to raise their on–the-job productivity.
a. True
b. False
30. The superstar phenomenon explains why professional athletes earn more than amateur athletes.
a. True
b. False
31. Superstars earn high incomes due to their ability to satisfy the demands of millions of people at
once.
a. True
b. False
4910 Earnings and Discrimination
32. An effective minimum wage law will increase the quantity of labor demanded.
a. True
b. False
33. Labor unions will raise the quantity of labor demanded.
a. True
b. False
34. Daryn and Nick work for two different companies, but each performs the same job working on a
loading dock.
Daryn, however, earns a higher salary than his friend Nick The difference in salary could illustrate
union wages if
Daryn’s annual salary is covered by a collective bargaining agreement and Nick’s is not.
a. True
b. False
Earnings and Discrimination 4911
35. Efficiency wages will raise the quantity of labor supplied to the market.
a. True
b. False
36. It is likely that efficiency wages will decrease employee effort.
a. True
b. False
37. Efficiency wages may decrease employee turnover.
a. True
b. False
4912 Earnings and Discrimination
38. Discrimination is a reflection of some people’s prejudice against certain groups in society.
a. True
b. False
39. Discrimination is an emotionally charged issue that is impossible to study objectively.
a. True
b. False
40. Labor-market discrimination based solely on age is illegal in the United States.
a. True
b. False
Earnings and Discrimination 4913
41. It is illegal in the United States for firms to pay different employees different wages for doing the
same job.
a. True
b. False
42. Evidence of discrimination is most apparent when one compares wages among broad groups.
a. True
b. False
43. When comparing average wages for black and white men in the United States, wages paid to
black men have been about 20 percent less than those paid to white men.
a. True
b. False
4914 Earnings and Discrimination
44. When comparing average wages for male and female workers in the United States, wages paid to
females have been about 40 percent less than those paid to male workers.
a. True
b. False
45. Politicians often point to wage differentials as evidence of labor-market discrimination against
ethnic minorities and women; however, economists argue against this approach because people
differ in the amount of human capital they have and the kinds of work they are willing and able to
do.
a. True
b. False
46. If an older worker earns less than a younger worker for the same job, we have proof of age
discrimination.
a. True
b. False
Earnings and Discrimination 4915
47. If people with blue eyes earn more than people with brown eyes, we have proof of discrimination
against people with brown eyes.
a. True
b. False
48. Economists would argue that the gender wage gap is narrowing because of efficiency wages.
a. True
b. False
49. Differences in human capital among groups of workers is possibly a reflection of past
discrimination.
a. True
b. False
4916 Earnings and Discrimination
50. Differences in human capital among workers can often be attributed to social or political
processes rather than economic processes.
a. True
b. False
51. All differences in wages that are not accounted for by differences in human-capital investment are
likely to be a result of discrimination.
a. True
b. False
52. In a labor market free from discrimination, wages for workers that are employed by the same
company will still differ.
a. True
b. False
Earnings and Discrimination 4917
53. One example of labor-market discrimination is that firms may be less likely to interview job-
market candidates whose names suggest that they are members of a racial minority.
a. True
b. False
54. Discrimination is usually not a profit-maximizing strategy.
a. True
b. False
55. When discrimination occurs as a result of employer prejudice, discriminating firms do not
maximize profits.
a. True
b. False
4918 Earnings and Discrimination
56. Profit–maximizing, competitive firms will not discriminate in the hiring of workers unless
consumers exercise a preference for discrimination in product markets or governments mandate
discrimination.
a. True
b. False
57. A study using data from the late 1960s showed that black baseball players earned less than comparable
white players. Studies of more recent salaries in baseball, however, have found no evidence of
discriminatory wage differentials.
a. True
b. False
58. Streetcar owners in the early 20th century were against segregation for profit maximizing reasons.
a. True
b. False
Earnings and Discrimination 4919
59. According to economic historians, streetcars in southern cities in the early 1900s were racially
segregated because the owners of the firms believed that segregation raised the firms’ profits.
a. True
b. False
60. Experimental evidence indicates women choose less competitive environments than men.
a. True
b. False
61. Customer discrimination is illegal in the United States.
a. True
b. False
4920 Earnings and Discrimination
62. Consumers are often a primary source of discrimination in labor markets.
a. True
b. False
63. On average professors of finance earn more than professors of economics. Other things the same,
what does this imply about the supply of each type of professor?
64. Some economists argue that changes in U.S. trade flows have altered the gap between wages of
skilled and unskilled workers. Explain.
Earnings and Discrimination 4921
65. A recent study of the determinants of wages for clerical staff at a state university found that years
of schooling, years of experience, age and job characteristics only explained about one-half of
the difference in wages. Describe other factors that may be important in explaining wages
differences for clerical staff.
66. After graduating from college, you receive job offers from five different accounting firms. All job
offers have a different compensation package. Is it irrational for you to accept an offer that doesn‘t
provide the highest level of monetary compensation? Use the concept of compensating
differentials to explain your answer.