Earnings and Discrimination 4843
241. The theory of efficiency wages challenges the assumption that
a. workers are efficient.
b. workers have an incentive to shirk their responsibilities to their employers.
c. wages must always adjust to balance labor supply and labor demand.
d. firms sometimes choose to pay their workers above-equilibrium wages.
242. In 1913, the Ford Motor Company decided to pay its employees $5 a day. This wage was
significantly higher than what any other organization offered. Henry Ford believed that this wage
would make his employees happier, increase their productivity, and lower employee turnover.
Economists would say that Mr. Ford offered his employees
a. a union.
b. an efficiency wage.
c. a diminishing rate of marginal return.
d. a leisure wage.
4844 Earnings and Discrimination
243. The idea of paying workers an efficiency wage is that
a. employers will find it profitable to hire more workers.
b. workers receive wages consistent with their specific compensating differentials.
c. workers and management gain at the expense of the stockholders of the company.
d. workers have the incentive to work harder, thus increasing their marginal productivity.
244. Which of the following sets of circumstances is likely to provide the best evidence in support of
the theory of efficiency wages?
a. Workers in the market are unskilled and not represented by a union, and their wage exceeds
both the equilibrium wage and the minimum wage.
b. Workers in the market are highly skilled and not represented by a union, and their wage
exceeds the minimum wage.
c. Workers in the market are highly skilled and represented by a union, and their wage exceeds
the equilibrium wage.
d. Employers in the market are known for reducing the workers’ wage whenever they get an
opportunity to do so.
Earnings and Discrimination 4845
245. The theory of efficiency wages suggests that
a. above-equilibrium wages increase worker productivity.
b. workers with higher levels of education earn more than workers with lower levels of
education.
c. workers signal their high ability to potential employers by completing formal years of schooling.
d. union workers earn more than nonunion workers.
246. Most wage differences can be understood while maintaining the assumption of equilibrium in the
labor market. We deviate from that assumption, however, when we consider
a. the superstar phenomenon.
b. the theory of efficiency wages.
c. compensating differentials.
d. differences in educational attainment.
4846 Earnings and Discrimination
247. Bob, the manager and owner of a small company, believes in the theory of efficiency wages. As
such, Bob would be most likely to agree with which of the following quotes?
a. “The only place where success comes before work is in the dictionary.”
b. “Work hard. Play harder.”
c. “Pay a man for the job you want him to do.”
d. “Imagination is more important than knowledge.”
248. The market wage could be higher than the equilibrium wage if a worker
a. belongs to a labor union.
b. is covered by a minimum-wage law.
c. is paid an efficiency wage.
d. All of the above are correct.
Earnings and Discrimination 4847
249. Which of the following would both make a worker’s wage higher than otherwise?
a. the work is safe, the employer pays an efficiency wage
b. the work is safe, the employer does not pay an efficiency wage
c. the work is dangerous, the employer pays an efficiency wage
d. the work is dangerous, the employer does not pay and efficiency wage
250. Which of the following moves the wage above its equilibrium value?
a. both compensating differentials and efficiency wages
b. compensating differentials but not efficiency wages
c. efficiency wages but not compensating differentials
d. neither compensating differentials nor efficiency wages
4848 Earnings and Discrimination
Multiple Choice – Section 02: The Economics of Discrimination
1. Discrimination occurs when the marketplace offers different opportunities to similar individuals who
differ only by
a. race.
b. level of education.
c. attitudes toward risk.
d. All of the above are forms of discrimination.
2. Discrimination occurs when the marketplace offers different opportunities to similar individuals who
differ only by
a. age.
b. years of experience.
c. years of education.
d. All of the above are forms of discrimination.
Earnings and Discrimination 4849
3. By definition, there is discrimination when the marketplace offers different opportunities to similar
individuals who differ only by
a. race, ethnic group, sex, age, or other personal characteristics.
b. qualifications, experience, or job preferences.
c. levels of human capital.
d. All of the above are correct.
4. Offering different opportunities to similar individuals who differ only by race, ethnic group, sex, age,
or other personal characteristics is called
a. a compensating differential.
b. an efficiency wage.
c. discrimination.
d. compensating variation.
4850 Earnings and Discrimination
5. Which of the following represents an example of labor-market discrimination?
a. An employer is more likely to grant an interview to a person graduating from Yale than from the
local community college.
b. An employer is more likely to grant an interview to a person graduating from the local
community college than from Yale.
c. An employer is more likely to grant an interview to a woman with a traditionally “white” name
such as Emily than to a woman with a traditionally “black” name such as Lakisha.
d. An employer is as likely to grant an interview to person with a traditionally “masculine” name
such as “Alex” as a person with a traditionally “feminine” name such as “Emily.”
6. Labor-market discrimination is evident when
a. wages of individuals differ on the basis of some recognizable attribute that is unrelated to
productivity.
b. wage rates differ for similar jobs.
c. consumers prefer to shop at some stores, and not at others.
d. wages reflect workers’ human capital.
Earnings and Discrimination 4851
7. Which of the following statements does not accurately describe the market for labor?
a. The characteristics of workers, such as their education and experience, the characteristics of
jobs, such as their pleasantness or unpleasantness, and the presence or absence of discrimination
by employers all determine equilibrium wages.
b. Labor unions, minimum wage laws, and efficiency wages all may increase wages above their
equilibrium level.
c. Firms are willing to pay more for better-educated workers as long as there is an excess supply
of this type of worker.
d. Discrimination by employers against a group of workers may artificially lower wages for that
group.
8. According to evidence provided by the U.S. government, the median black
a. woman is paid roughly the same as the median white woman.
b. woman is paid roughly the same as the median black man.
c. man is paid 21 percent less than the median white man.
d. All of the above are correct.
4852 Earnings and Discrimination
9. According to evidence provided by the U.S. government, the median black
a. man earns more than the median black woman.
b. woman earns less than the median white woman
c. man earns less than the median white man.
d. All of the above are correct.
10. Which of the following statements is correct?
a. Differences in human capital may explain differences in wages between blacks and whites.
b. Racial discrimination is the strongest explanation for differences in wages between blacks and
whites.
c. Gender discrimination is the strongest explanation for differences in wages between blacks and
whites.
d. None of the above statements is correct.
11. Which of the following can be used to help explain wage differences among different groups of
workers?
a. human capital acquired through education
b. human capital acquired through job experience
c. compensating differentials
d. All of the above can explain wage differences.
Earnings and Discrimination 4853
12. Given that the median male is better paid than the median female, which of the following is a valid
explanation for wage differences?
a. compensating differentials
b. differences in human capital
c. discrimination
d. All of the above can be a partial explanation.
13. Which of the following is an example of discrimination in the labor market?
a. Women earn less than men because women are more likely to be employed in occupations that
pay less, such as elementary school teachers rather than electrical engineers.
b. Women earn less than men because women have, on average, fewer years of experience in
the labor force because women, on average, periodically leave the labor force to raise children.
c. A pharmaceutical sales company pays women less than men because the company’s
customers, physicians and pharmacists, say that they prefer to deal with men rather than
women.
d. All of the above are examples of discrimination.
4854 Earnings and Discrimination
14. Which of the following can be used to help explain wage differences among different groups of
workers?
a. human capital
b. discrimination
c. unions
d. All of the above could explain wage differences among groups.
15. Which of the following can be used to help explain wage differences among different groups of
workers?
a. human capital and compensating differentials
b. human capital but not compensating differentials
c. compensating differentials but not human capital
d. neither human capital nor compensating differentials
16. Evidence of differences in the average wages of black workers compared to white workers
a. does not alone provide conclusive evidence of discrimination.
b. clearly indicates differences in productivity between races.
c. is seldom used to provide evidence of discriminatory bias.
d. clearly indicates discrimination on the basis of race.
Earnings and Discrimination 4855
17. Evidence of differences in average wages of women compared to men
a. clearly illustrates differences in productivity between genders.
b. provides conclusive evidence of discrimination on the basis of gender.
c. is seldom used to provide evidence of discriminatory bias.
d. does not provide conclusive evidence of discrimination.
18. White women earn an average of 25% less than white men. A labor economist who wants to
investigate whether the differences in earnings indicate labor-market discrimination against women
should consider whether white men and women have similar
(i) years of work experience.
(ii) educational attainments.
(iii) occupations.
(iv) child care responsibilities.
a. (i) and (ii) only
b. (iii) and (iv) only
c. (ii) only
d. (i), (ii), (iii), and (iv)
4856 Earnings and Discrimination
19. Black men earn an average of 21% less than white men. A labor economist who wants to
investigate whether the differences in earnings indicate labor-market discrimination against black
men should consider whether black and white men have similar
(i) years of work experience.
(ii) years of education.
(iii) occupations.
(iv) quality of education.
a. (i) and (ii) only
b. (iii) and (iv) only
c. (ii) only
d. (i), (ii), (iii), and (iv)
20. Regarding wage differences among various groups of workers — blacks and whites, men and
women, etc. — most economists believe that
a. no such differences are evident from the available data.
b. most of the differences are attributable to discrimination.
c. some of the wage differences are attributable to discrimination, but there is disagreement about
how much.
d. none of the differences are attributable to discrimination.
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21. Economists generally agree that
a. human capital theory provides the best explanation of discriminatory practices.
b. differences in average wages do not by themselves provide conclusive evidence about the
magnitude of discrimination in labor markets.
c. discrimination is exclusively an economic, rather than political, phenomenon.
d. most of the wage differentials observed in the U.S. economy are due to discrimination.
22. A consensus view among economists regarding the possibility of labor-market discrimination is
that
a. most wage differences among groups are attributable to discrimination.
b. many employers use compensating differentials to hide discriminatory practices.
c. wage differences among groups are not sufficient by themselves to determine how much
discrimination there is.
d. all wage differences among groups are attributable to differences in human capital and
compensating differentials.
4858 Earnings and Discrimination
23. Politicians often point to wage differentials as evidence of labor market discrimination against
ethnic minorities and women. Economists, however, argue against this approach because
a. they don’t believe the wage differential really exists.
b. they can’t agree on a definition of the term “discrimination.”
c. they believe compensating differentials account for all wage differences.
d. different people may have different wages for reasons unrelated to discrimination.
24. It is likely that, if we could measure the quality as well as the quantity of education,
a. the human-capital argument would become less compelling as a means of explaining wage
differentials between white workers and black workers.
b. the human-capital argument would become less compelling as a means of explaining wage
differentials between male workers and female workers.
c. wage differentials between white workers and black workers would be more puzzling than they
are now.
d. wage differentials between white workers and black workers would be more fully explained.
Earnings and Discrimination 4859
25. Men and women tend to choose different types of occupations, and so
a. a source of wage differences between men and women is differences in human capital.
b. a source of wage differences between men and women is compensating differentials.
c. the gap between the earnings of men and the earnings of women is likely even more significant
than the data alone indicate.
d. we should expect the earnings of women to rise relative to the earnings of men, in order to
induce women to accept jobs that they have been reluctant to accept in the past.
26. Assume men, on balance, have lower amounts of human capital than women have. Then we
would expect
a. the demand for female labor to be lower than the demand for male labor.
b. the demand for female labor to be higher than the demand for male labor.
c. the supply of female labor to be lower than the demand for male labor.
d. the supply of female labor to be higher than the supply of male labor.
27. Evidence of discrimination in labor markets
a. applies only to race and gender.
b. is conclusively identified by large differences in average wages rates between men and
women.
c. is difficult to verify by reference to differences in average wage rates.
d. is more easily identified on the basis of race than gender.
4860 Earnings and Discrimination
28. Most economists believe that the higher average salaries earned by men in comparison to women
arise from
a. discrimination.
b. a variety of factors, including differences in human capital and compensating differentials; few
economists believe that gender discrimination in earnings exists.
c. differences in human capital as the primary reason.
d. a variety of factors, including differences in human capital, compensating differentials, and
discrimination.
29. If an employer pays a man a higher wage than a woman, the employer
a. is discriminating against the woman but is still maximizing profit.
b. is not discriminating against the woman.
c. may or may not be discriminating against the woman.
d. is discriminating against the woman and is not maximizing profit.
Earnings and Discrimination 4861
30. Which of the following is least likely to be the reason women are underrepresented in the
economics profession?
a. labor market discrimination
b. the choice of women to select other occupations
c. cultural bias in primary and secondary education
d. the inability of women to solve problems in economics
31. If men, on average, earn 20 percent more than women in a particular occupation,
a. this is clear evidence of discrimination.
b. some of this differential could be due to differences in educational levels.
c. some of this differential could be due to differences in human capital.
d. Both b and c are correct.
32. Empirical work that does not account for differences in the productivity of workers
a. is unlikely to find evidence of wage differentials.
b. can provide strong evidence of labor market discrimination.
c. is likely to misinterpret apparent evidence of labor market discrimination.
d. is accepted as superior to empirical work that does correct for differences in productivity of
workers.
4862 Earnings and Discrimination
33. Attributing the gender wage gap to ongoing discrimination by employers will likely be incorrect
because
a. some of the wage gap is explained by efficiency wages.
b. differences in years of work experience likely lead to productivity differences between men
and women.
c. compensating differentials usually lead to higher wages for women.
d. All of the above are correct.
34. One of the problems with calculating the true amount of discrimination that takes place in the
market for labor is
a. the inability to calculate wage differentials.
b. the inability to see changes in the wage differentials over a period of time.
c. the difficulty in measuring productivity differences between workers.
d. the difficulty in measuring female labor-force participation.
35. Differences in human capital are likely to
a. be unrelated to wage rate differences across gender classifications, since both men and women
are required to complete requirements for a high school diploma.
b. be most helpful in explaining age discrimination, but unhelpful in explaining race discrimination.
c. explain some of the differences in average wage rates across age classifications.
d. explain all of the differences in average wage rates across gender classifications.