Subjective Short Answer
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
5. The most important type of human capital is
Table 19-2
1975
Men
High school, no college
$48,720
College graduates
$69,146
Percent extra for college grads
+42%
Women
High school, no college
$28,006
College graduates
$37,804
Percent extra for college grads
+35%
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?
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?
The gap has widened for both men and women.
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?
increased international trade and changes in technology
9. Why do college graduates earn more in wages than workers with only a high school diploma?
They have more human capital.
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?
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?
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
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?
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
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?
$5 and 250
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?
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?
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?
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)
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?
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?
white, 50%
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?
Women will be paid less than men.
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?
Women will be hired and the wage differential will disappear.
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?
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?
51. 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?
52. Some economists argue that changes in U.S. trade flows have altered the gap between wages of skilled and unskilled
workers. Explain.
by skilled workers. Increased imports and exports have reduced U.S. demand for unskilled
workers and raised U.S. demand for skilled workers. Consequently, wages of unskilled
workers have fallen relative to wages of skilled workers.
53. 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.
form of discrimination.
54. 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.
and quality-of–life issues associated with a particular job offer. Thus, it is not irrational to
consider nonmonetary compensation.
55. 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.
56. 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?
57. 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.
58. Explain the role of job experience in explaining the differences between the average wages of men and women.
59. Explain how compensating differentials could contribute to differences between the average wages of men and
women.
60. Evaluate the following statement: “The gender pay gap provides evidence of widespread, severe, ongoing
discrimination by employers and fellow workers.”
61. 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.
62. Explain the role that consumers play in perpetuating discrimination in labor markets.
63. 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.