Earnings and Discrimination 4783
122. The difference in wages paid to major–league baseball players and minor-league baseball players
is most likely due to
a. differences in chance.
b. differences in natural ability.
c. the fact that the players‘ union is strong.
d. a compensating differential.
123. A compensation scheme that pays salespeople a percentage of the sales they make is attempting
to reward
a. work effort.
b. loyalty to the firm.
c. years of schooling.
d. years of experience.
4784 Earnings and Discrimination
124. Workers whose skills become obsolete as a result of technological change are often paid a
lower wage as a result of
a. natural ability.
b. geographic location of employment.
c. chance.
d. work effort.
125. Economists who study labor markets have discovered that
a. only about 5 percent of wage differences are related to chance.
b. ability is not difficult to measure but is largely insignificant in explaining wage differences.
c. work effort is difficult to measure but is not likely to contribute much to an explanation of
wage differences.
d. ability, effort, and chance are likely to be significant contributors to wage differences.
Earnings and Discrimination 4785
126. In empirical analyses of factors that help explain wages,
a. effort and ability are not likely to contribute to large differences in wages in the U.S.
economy.
b. economists typically find that measurable factors explain less than half of the variation in
wages.
c. economists typically find few factors that are not explicitly measurable.
d. unmeasurable influences on wage differences are found to be quite small.
127. Economists who study labor markets have documented
a. a general decline in the wages of college graduates over the last decade.
b. an increasing trend in U.S. labor markets for employers to pay all costs of education and
training.
c. a decrease in the earnings gap between low-skill and high-skill workers over the past two
decades.
d. an increase in the earnings gap between low-skill and high-skill workers over the past two
decades.
4786 Earnings and Discrimination
128. Economists have found evidence that differences in wages can be explained by
a. experience
b. job characteristics
c. physical attractiveness
d. All of the above are correct.
129. Which of the following helps to explain the differences in earnings in the United States?
a. ability, effort, and chance
b. compensating differentials
c. physical attractiveness
d. All of the above are correct.
Earnings and Discrimination 4787
130. Which of the following does not affect the wages a worker earns?
a. natural ability
b. effort
c. chance
d. All of the above affect the wages a worker earns.
131. Certain factors that are probably important in determining wages are nevertheless difficult to
measure. Consequently, labor economists find those factors difficult to incorporate into their
studies of labor markets and wages. Those factors include
a. effort and natural ability.
b. natural ability and years of experience.
c. years of experience and job characteristics.
d. race and job characteristics.
4788 Earnings and Discrimination
132. Which of the following variables related to a worker’s wage are the most difficult to measure?
a. ability, effort, and chance
b. job characteristics, gender, and race
c. gender, race, and geographic location
d. years of schooling, age, and years of experience
133. In determining wages, ability, effort, and chance
a. probably play no role whatsoever.
b. play a role, but their importance is hard to gauge since ability, effort, and chance are hard to
measure.
c. play a role, and that role is fully captured in easy-to-measure factors such as human capital
and age.
d. play a role, and it is fully explained within the context of compensating differentials.
Earnings and Discrimination 4789
134. Hunter is an ambitious, competitive person who has always tried to be the best at everything he
does. Consider the following job options facing Hunter and choose the option that will likely
afford him the highest wage.
a. elementary school teacher who works 9 months of the year
b. manager in a large firm who earns an annual salary with no potential for bonuses or
commissions
c. salesperson who earns a small base salary plus a percentage of the sales he makes
d. local television news anchor who works during the day
135. Studies of wages by labor economists indicate that measurable variables such as age, job
characteristics, years of education, and years of experience account for
a. virtually none of the variation in wages in our economy.
b. some, but less than 50 percent of the variation in wages in our economy.
c. about 75 percent of the variation in wages in our economy.
d. almost all of the variation in wages in our economy.
4790 Earnings and Discrimination
136. Tom and Eric went to trade school at the same time. Each graduated with an associate’s degree.
They have received similar performance evaluations. Eric’s employer is not a good business
manager, and the sales manager lost a major deal. Because of the decrease in profits, the
employees did not receive raises last year. Tom’s employer is a savvy business manager and the
sales manager is experienced and works hard. If Tom has higher earnings than Eric, the
difference is most likely a function of
a. chance.
b. differences in human capital.
c. differences in signaling.
d. discrimination.
137. According to the Hamermesh and Biddle study, people deemed more attractive than average
earn
a. 30–40 percent more than unattractive people.
b. about 5 percent more than average looking people.
c. the same as average looking people and 15-20 percent more than unattractive people.
d. 25 percent more than average looking people and 50 percent more than unattractive people.
Earnings and Discrimination 4791
138. A study by labor economists Hamermesh and Biddle found that
a. shorter-than-average men earn more than shorter-than-average women, all else equal.
b. above-average looking people earn more than average-looking people, all else equal.
c. shorter women earn more than taller women, all else equal.
d. All of the above are correct.
139. Christy and Claudia are aspiring models. Talent scouts consider them to be similarly beautiful.
Both enter a talent show. Claudia contracts food poisoning the night before the competition and
withdraws. Christy wins the competition and signs a multi-million dollar contract. The differences
in their earnings likely reflect
a. discrimination.
b. differences in human capital.
c. differences in signaling.
d. chance.
4792 Earnings and Discrimination
140. Which of the following is not an interpretation of the “beauty premium”?
a. Beautiful workers are not willing to work for lower wages.
b. Good looks are a type of innate ability causing the worker to be more valuable to the firm.
c. The beauty premium is a type of discrimination.
d. Beauty is an indirect measure of other types of ability.
141. Which of the following is an economic explanation for the “beauty premium”?
a. Employers pay very attractive women less than average-looking women because they believe
them to be less intelligent.
b. Employers pay above-average-looking men more than above–average-looking women.
c. Employers pay above-average-looking women more than average-looking women because
customers prefer to deal with better-looking women.
d. Employers pay above-average-looking men more because they signal to the market that they
are willing to spend more money on personal grooming, a sign of wealth and stability.
Earnings and Discrimination 4793
142. The “beauty premium” can be explained by the fact that
a. marginal productivity in all occupations has a physical dimension.
b. in some occupations, physical attractiveness of workers may enhance the value of their
marginal product.
c. beauty acts as an implicit signal of innate intelligence.
d. beautiful people are likely to reflect “good breeding.”
143. Which of the following does not explain the “beauty premium” differences in wages?
a. Better-looking people are preferred by customers; thus, employers will pay them higher wages
than average- looking people.
b. Beauty may be an indirect measure of other abilities that employers value.
c. Average-looking people are preferred by customers; thus, employers will pay them higher
wages than better- looking people.
d. Employers discriminate in favor of better-looking people.
4794 Earnings and Discrimination
144. Which of the following explains the “beauty premium” differences in wages?
a. People who spend time on their personal appearance may send a signal that they are more
productive workers.
b. Personal appearance and intelligence are inversely related.
c. The “superstar phenomenon” explains the “beauty premium.”
d. Better-looking people are more efficient; thus, they are paid an efficiency wage.
145. Which of the following might explain the beauty premium found by labor economists
Hamermesh and Biddle?
a. Good looks are an innate ability for some jobs, which results in higher productivity and higher
wages.
b. Good looks may be an indirect measure of other types of ability such as attention to detail.
c. If better-looking people earn more than average–looking people, employers may be
discriminating based on personal appearance.
d. All of the above could explain the beauty premium.
Earnings and Discrimination 4795
146. George and Brad are waiters at a local restaurant. The female customers prefer to be seated at
the tables that George waits on because they think George is better looking than Brad. If George
earns more than Brad because of his better looks, this is an example of
a. effort playing a key role in wage differences.
b. differences in human capital.
c. a beauty premium.
d. a compensating differential.
147. George and Brad are waiters at a local restaurant. The female customers think that George is
better looking than Brad. If George earns more than Brad, this could be an example of each of
the following except
a. customer preferences.
b. discrimination.
c. a beauty premium.
d. a compensating differential.
4796 Earnings and Discrimination
148. Dan and Dave are both college graduates. Dan is a patrolman and Dave is a detective in the
same police precinct. While Dan’s job is inherently more dangerous than Dave’s, Dave passed a
difficult exam to gain promotion to detective. Dave earns more than Dan because
a. Dave’s job is less dangerous.
b. of efficiency wages.
c. of education as a signal.
d. Dave has more human capital.
149. Which theory is supportive of the idea that increasing educational levels for all workers would
raise all workers’ productivity and therefore their wages?
a. the theory of compensating differentials
b. the efficient-market hypothesis
c. human-capital theory
d. signaling theory
Earnings and Discrimination 4797
150. Which of the following theories explains why increased education translates into higher wages?
a. human-capital theory
b. the theory of compensating differentials
c. the theory of supply and demand
d. comparative advantage
151. Which of the following is not an explanation for why better educated workers earn more, on
average, than less educated workers?
a. The higher wages may be a compensating differential for the cost of acquiring the education.
b. Workers with a college degree signal their higher abilities to potential employers.
c. Skilled labor is increasingly becoming a substitute for unskilled labor, which raises the
earnings of workers with more education.
d. Better educated workers are more productive, on average.
4798 Earnings and Discrimination
152. Suppose that a college student receives an offer for a summer internship with a stock brokerage
firm. Unfortunately for the student, the internship is unpaid. Is it ever economically beneficial to
accept an unpaid job?
a. Yes, because the experience gained during the internship would increase the student’s human
capital.
b. No, because the opportunity cost is too high.
c. No, because the student is signaling to future employers that he or she is willing to accept low
wages.
d. Yes, because accepting an unpaid job signals to future employers that the student has stable
personal finances.
153. Which of the following statements is not correct?
a. Both the human capital theory and the signaling theory of education could explain why college
graduates earn more than high school graduates.
b. The signaling theory of education suggests that the ability to complete a college degree is
correlated with the ability to perform well in the labor market.
c. If the human capital theory of education is correct, a government policy that pays for additional
schooling for all workers would not increase wages.
d. If the signaling theory of education is correct, a government policy that pays for additional
schooling for all workers would not increase wages.
Earnings and Discrimination 4799
154. Of the theories listed below, which do the best job of explaining why educated people are paid
more than uneducated people?
a. human–capital and price-fixing
b. human-capital and signaling
c. wage-differential and signaling
d. wage-differential and compensating–differentials
155. The human-capital theory explanation for why people invest in education has been challenged by
a theory that suggests
a. schooling acts only as a signal of ability.
b. humans cannot be considered “capital.”
c. productivity is not linked to wages.
d. ability, effort, and chance matter more.
4800 Earnings and Discrimination
156. When employers sort employment applications into high-ability and low-ability people based on
whether or not the applicant has a college degree (irrespective of major), they are providing
evidence in support of the
a. human-capital theory of education.
b. signaling theory of education.
c. principle that education reduces marginal productivity.
d. principle that most business owners are more interested in discriminating against a particular
group than in maximizing profits.
157. The belief that education makes a person more productive and thereby raises his or her wage is
referred to as the
a. signaling view of education.
b. natural–ability view of education.
c. unmeasured-variables view of education.
d. human-capital view of education.
Earnings and Discrimination 4801
158. Which of the following examples best describes the signaling theory of education?
a. The hiring manager offers a job to a recent college graduate because she is more beautiful
than the rest of the applicants.
b. The hiring manager offers a job to a recent college graduate because she is expected to be
more productive than other applicants due to her educational attainment.
c. The hiring manager offers a job to a recent college graduate because the hiring manager has a
bias toward people with college degrees.
d. The hiring manager offers a job to a recent college graduate because education is correlated
with natural ability.
159. A signaling theory of education suggests that educational attainment
a. is a signal of high marginal productivity.
b. is correlated with natural ability.
c. increases the productivity of low-ability workers.
d. Both a and b are correct.
4802 Earnings and Discrimination
160. According to the human-capital view, education
a. has no effect on lifetime earnings.
b. alters work ethic.
c. enhances productivity.
d. is an indicator of natural ability.
161. According to the signaling view, education
a. has no effect on lifetime earnings.
b. alters work ethic.
c. enhances productivity.
d. is an indicator of natural ability.
162. A college degree makes a person more productive according to
a. both the human–capital and the signaling theories of education.
b. the human-capital but not the signaling theory of education.
c. the signaling but not the human-capital theory of education.
d. neither the human-capital nor the signaling theory of education.