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4922 Earnings and Discrimination
67. The National Collegiate Athletic Association (NCAA) has long argued that nationally-prominent
college athletes are compensated with an investment in human capital that far exceeds the
monetary reward of playing professional sports. Examine this argument in light of your knowledge
of human capital theory and the economic theory of labor markets.
68. Explain the theory that education acts as a signaling device. How does this contrast with the
theory of education as an investment in human capital?
Earnings and Discrimination 4923
69. List the productivity factors that may explain the differences in pay between men and women in
similar occupations. Do any of these factors arise as a result of cultural or social traditions? If so,
describe how changes in social relationships will affect the pay gap over time.
70. Explain the role of job experience in explaining the differences between the average wages of
men and women.
71. Explain how compensating differentials could contribute to differences between the average
wages of men and women.
4924 Earnings and Discrimination
72. Evaluate the following statement: "The gender pay gap provides evidence of widespread, severe,
ongoing discrimination by employers and fellow workers."
73. Once during a U.S. presidential campaign, a lobbyist for a prominent national women's
organization made the claim that women in the United States earn $0.60 for every $1.00 earned
by a man. A reporter, who was prepared for this statement, asked the lobbyist why wages paid to
the organization's secretarial staff (all of whom were women) were significantly below the
national average if they were truly interested in raising the rates of compensation for women. If
you were the lobbyist, how would you have answered this question? Do you think your answer is
convincing? Explain.
Earnings and Discrimination 4925
74. Explain the role that consumers play in perpetuating discrimination in labor markets.
75. Explain why the following situation is likely to persist: soccer players in Europe are the highest
paid athletes and in the US they are among the lowest paid athletes.
4926 Earnings and Discrimination
Problems
1. The difference in wages that results from nonmonetary characteristics of different jobs is called
the
2. Workers who work the night shift at factories are paid more than similar workers who work the
day shift due to a
3. Consider two groups of workers of equal skill level and experience: those who collect garbage and
those who stuff envelopes with campaign fliers. Which group is likely to be paid more and why?
4. The accumulation of investments in people is called
Earnings and Discrimination 4927
5. The most important type of human capital is
Table 19-2
1975
2011
Men
High school, no college
$48,720
$46,038
College graduates
$69,146
$80,508
Percent extra for college grads
+42%
+75%
Women
High school, no college
$28,006
$32,249
College graduates
$37,804
$58,229
Percent extra for college grads
+35%
+81%
Source: US Census Bureau and Mankiw’s calculations
6. Refer to Table 19-2. In 2011, on average how much more income would a man with a college
degree earn than a man with a high school degree?
4928 Earnings and Discrimination
7. Refer to Table 19-2. What conclusion can you draw about the changes in the gaps in earnings
between skilled and unskilled workers between 1975 and 2011?
8. Refer to Table 19-2. What are two possible hypotheses to explain the changes in relative demand
for high-skilled workers and low-skilled workers in recent years?
9. Why do college graduates earn more in wages than workers with only a high school diploma?
10. About what proportion of the variation of wages across workers is explained by factors that can
be measured? What are the other factors that explain wage differences but are difficult to
measure?
Earnings and Discrimination 4929
11. Lucy and Lincoln are salespeople working for the same company with equal skills, ability, and
experience. Both are paid a small base salary but the majority of their compensation is in the form
of a commission, which is a percentage of the sales they make. Lucy earns more each year than
Lincoln. What can you conclude about Lucy and Lincoln?
12. According to economists Hamermesh and Biddle, how much more do people who are deemed
more attractive than average earn?
13. According to a study of the “beauty premium,” how do the wages of people with average looks
compare to those of people considered less attractive than average?
14. Which theory states that education makes workers more productive?
4930 Earnings and Discrimination
15. The theory of education that states firms use educational attainment as a way of sorting between
high-ability and low-ability workers is called
16. Which theory states that education is correlated with natural ability?
17. Chris just completed his college degree from a prestigious university. He did not go to school to
become more productive. Rather, he went to school and completed his degree to convey his innate
productivity to employers. To which theory of education does he subscribe?
18. If a good is produced with technology that allows the best producer to supply every customer at a
low cost and every customer in the market wants to enjoy the good supplied by the best producer,
the best producer will be called a
Earnings and Discrimination 4931
19. Superstars arise in markets in which every customer in the market is able to enjoy the good
supplied by the
20. Name two occupations that have the two characteristics required for the superstar phenomenon.
21. List three reasons why wages could be set above the equilibrium wage.
22. A cutting-edge biotech firm is hiring recent college graduates. To attract the very best applicants
and to increase worker effort the firm is paying a wage 20% higher than the market wage for
entry level employees in this industry. What is the term for the wage paid in this example?
4932 Earnings and Discrimination
23. Cheryl is a professor at a local university. She hired a student from the university to babysit for
her children and paid the student a wage higher than the typical wage paid to babysitters in her
area to ensure the babysitter’s reliability and that attention is paid to her children. What is the
name for this above-equilibrium wage?
24. A group of firms working together and acting as a supplier of a product is called a cartel. A group
of employees working together and acting as a single supplier of labor is called a
25. Unions are often able to sustain wages above the equilibrium wage because they can threaten to
Earnings and Discrimination 4933
Figure 19-6
26. Refer to Figure 19-6. Given demand, D1, and supply, S1, if wages adjust to balance labor
supply and labor demand, what are the wage and quantity of labor?
27. Refer to Figure 19-6. Given demand, D1, and supply, S1, what is the quantity of labor demanded
if a minimum wage of $8 per hour is imposed on this market?
4934 Earnings and Discrimination
28. Refer to Figure 19-6. Given demand, D1, and supply, S1, how many workers are unemployed if
a minimum wage of $8 per hour is imposed on this market?
29. Refer to Figure 19-6. Given demand, D1, and supply, S2, how many workers are unemployed if
a minimum wage of $8 per hour is imposed on this market?
30. Refer to Figure 19-6. Given demand, D1, and supply, S2, how many fewer people are employed
if a minimum wage of $8 per hour is imposed on this market as compared to allowing wages to
adjust to balance labor demand and labor supply?
31. Refer to Figure 19-6. Given demand, D1, and supply, S2, how much more do the workers with
jobs earn per hour if a minimum wage of $8 per hour is imposed on this market?
Earnings and Discrimination 4935
32. Refer to Figure 19-6. Given demand, D1, and supply, S1, how much more do workers earn per
hour if the supply curve shifts to S2?
Figure 19-7
33. Refer to Figure 19-7. The figure shows labor demand and labor supply in a non-unionized labor
market. If the current labor demand is D1 and the current labor supply is S1, what is the
equilibrium wage and quantity of labor?
4936 Earnings and Discrimination
34. Refer to Figure 19-7. The figure shows labor demand and labor supply in a non-unionized labor
market. If the current labor demand is D1 and the current labor supply is S1, when a minimum
wage of $18 per hour is imposed in this market, how many unemployed workers result?
35. Refer to Figure 19-7. The figure shows labor demand and labor supply in a non-unionized labor
market. If the current labor demand is D1 and the current labor supply is S1, when a union is
established in this market and succeeds in raising the wage to $18 per hour, what is the change in
the number of workers employed?
36. Refer to Figure 19-7. The figure shows labor demand and labor supply in a non-unionized labor
market. Suppose the current labor demand is D1 and the current labor supply is S1. If a firm in
this market decided to pay its workers $18 per hour to increase the productivity of its workers, this
firm would be paying a(n)
Earnings and Discrimination 4937
37. What is the term for offering different opportunities to similar individuals who differ only by race,
ethnic group, sex, age, or other personal characteristics?
38. Artie and Angelina attended the same university, graduated with the same degree and grade point
average, and are equally productive in their identical new jobs. Still, Angelina’s salary is 10%
lower than Artie’s salary. One can conclude that Angelina likely suffers from
39. Among male workers over age 25, about what percent has a college degree? What is this
percentage for black male workers over age 25?
40. Among female workers over age 25, about what percent has a college degree? What is this
percentage for black female workers over age 25?
4938 Earnings and Discrimination
41. Studies show that white women earn approximately 25% less than white men. From this data
alone, one should not conclude that white women are victims of discrimination. Name two other
factors that could explain the difference in wages.
42. Is measuring the effect of discrimination on wages relatively easy or relatively difficult? Explain?
43. According to research by Bertrand and Mullainathan, which job applicants, those with “white”
names or those with “black” names, received more calls from interested employers? What
percent more?
Earnings and Discrimination 4939
Scenario 19-6
Suppose that in the competitive market for auto repair, firms prefer to hire men rather than
women. Assume that the women applying for positions have the same skills, experience, and
work ethic as the men. As a result of this discrimination, the demand for women is lower than it
otherwise would be.
44. Refer to Scenario 19-6. What conclusion can you draw about women’s wages compared to
men’s wages in this industry?
45. Refer to Scenario 19-6. If the firms in this market are profit-maximizers and customers do not
care if a woman or a man works on their car, what will likely happen?
46. Refer to Scenario 19-6. Suppose that consumers prefer to have men work on their auto repairs
and are willing to pay higher prices to accommodate these preferences. What will happen to the
wage differential between men and women?
4940 Earnings and Discrimination
47. Many economists believe that competitive, market economies provide a natural antidote to
employer discrimination known as the
48. Most of the time, a profit motive eliminates discriminatory behavior from a market; however, a
discriminatory wage gap can persist even if the firm owners only care about profit if there is
49. Many studies of wage discrimination have been conducted on professional sports teams. This
industry is easier to study than others because the professional teams have many objective
measures of
50. Economists typically explain occupational differences between men and women through
preferences, ability, and discrimination. What additional factor did economists Muriel Niederle and
Lise Vesterlund add to this list?
