©2004 Prentice Hall Publishing Ayers/Collinge, 1/e 1 Chapter 23 “Earnings and Income...

1 ©2004 Prentice Hall Publishing Ayers/Collinge, 1/e

Chapter 23Chapter 23“Earnings and Income “Earnings and Income

Distribution”Distribution”

Chapter 23Chapter 23“Earnings and Income “Earnings and Income

Distribution”Distribution”

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLYby Ayers and Collingeby Ayers and Collinge

ECONOMICS: ECONOMICS: EXPLORE & APPLYEXPLORE & APPLYby Ayers and Collingeby Ayers and Collinge


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

1.1. Relate the importance of wages and salaries.Relate the importance of wages and salaries.

2.2. Analyze why higher wages can lead an Analyze why higher wages can lead an individual to prefer either more or fewer individual to prefer either more or fewer work hours.work hours.

3.3. List and explain the many causes of earnings List and explain the many causes of earnings differentials.differentials.

4.4. Assess the extent and significance of poverty Assess the extent and significance of poverty and earnings differentials.and earnings differentials.

1.1. Relate the importance of wages and salaries.Relate the importance of wages and salaries.

2.2. Analyze why higher wages can lead an Analyze why higher wages can lead an individual to prefer either more or fewer individual to prefer either more or fewer work hours.work hours.

3.3. List and explain the many causes of earnings List and explain the many causes of earnings differentials.differentials.

4.4. Assess the extent and significance of poverty Assess the extent and significance of poverty and earnings differentials.and earnings differentials.


Learning ObjectivesLearning ObjectivesLearning ObjectivesLearning Objectives

5.5. Discuss significant differences between the Discuss significant differences between the types of income – wages, rent, interest, and types of income – wages, rent, interest, and profit.profit.

6.6. Discuss the life cycle of earnings through the Discuss the life cycle of earnings through the use of the age/earnings profile.use of the age/earnings profile.

5.5. Discuss significant differences between the Discuss significant differences between the types of income – wages, rent, interest, and types of income – wages, rent, interest, and profit.profit.

6.6. Discuss the life cycle of earnings through the Discuss the life cycle of earnings through the use of the age/earnings profile.use of the age/earnings profile.


23.123.1MEASURING INCOMESMEASURING INCOMES23.123.1MEASURING INCOMESMEASURING INCOMESo WagesWages are the incomes workers earn from are the incomes workers earn from

their jobs.their jobs.o The size of their incomes depends on two The size of their incomes depends on two

variables.variables.o The quantity of labor they supply.The quantity of labor they supply.o The amount they are paid.The amount they are paid.

o The price of labor is the The price of labor is the wage rate,wage rate, the amount the amount an individual is paid per hour.an individual is paid per hour.

o When the wage rate is multiplied by hours When the wage rate is multiplied by hours worked, the result is worked, the result is earnings. earnings.

o WagesWages are the incomes workers earn from are the incomes workers earn from their jobs.their jobs.

o The size of their incomes depends on two The size of their incomes depends on two variables.variables.o The quantity of labor they supply.The quantity of labor they supply.o The amount they are paid.The amount they are paid.

o The price of labor is the The price of labor is the wage rate,wage rate, the amount the amount an individual is paid per hour.an individual is paid per hour.

o When the wage rate is multiplied by hours When the wage rate is multiplied by hours worked, the result is worked, the result is earnings. earnings.


U.S. National IncomeU.S. National IncomeU.S. National IncomeU.S. National Income

Proprietor's Income

9%Net interest

8%

Rental Income

2%

Profit9%

Wages72%


23.223.2INDIVIDUAL LABOR SUPPLYINDIVIDUAL LABOR SUPPLY23.223.2INDIVIDUAL LABOR SUPPLYINDIVIDUAL LABOR SUPPLY The The reservation wagereservation wage is the wage below is the wage below which individuals choose not to work at all which individuals choose not to work at all (i.e., they “reserve” their labor). (i.e., they “reserve” their labor). Unlike supply curves for other things, Unlike supply curves for other things, the individual’s supply curve of labor the individual’s supply curve of labor services has a backward bending portion.services has a backward bending portion.The The substitution effectsubstitution effect, and the , and the income income effecteffect explain the backward-bending explain the backward-bending portion of the individuals supply curve of portion of the individuals supply curve of labor serviceslabor services

The The reservation wagereservation wage is the wage below is the wage below which individuals choose not to work at all which individuals choose not to work at all (i.e., they “reserve” their labor). (i.e., they “reserve” their labor). Unlike supply curves for other things, Unlike supply curves for other things, the individual’s supply curve of labor the individual’s supply curve of labor services has a backward bending portion.services has a backward bending portion.The The substitution effectsubstitution effect, and the , and the income income effecteffect explain the backward-bending explain the backward-bending portion of the individuals supply curve of portion of the individuals supply curve of labor serviceslabor services


Labor Supply CurveLabor Supply CurveLabor Supply CurveLabor Supply CurveW

age

Rat

e

Quantity of Labor

Labor Supply

Reservation Wage


Income and Substitution EffectsIncome and Substitution EffectsIncome and Substitution EffectsIncome and Substitution Effects

Substitution Effect:Substitution Effect: As wages rise, individuals As wages rise, individuals will seek to work more - substituting away from will seek to work more - substituting away from leisure - because the opportunity cost of leisure leisure - because the opportunity cost of leisure becomes higher as wage rates rise.becomes higher as wage rates rise.

Income Effect:Income Effect: As wages rise, higher wages As wages rise, higher wages bring higher incomes, which lead workers to bring higher incomes, which lead workers to demand more of all normal goods. Leisure is a demand more of all normal goods. Leisure is a normal good and, in order to “buy” more leisure, normal good and, in order to “buy” more leisure, workers pay the opportunity cost of giving up the workers pay the opportunity cost of giving up the income from some work hours.income from some work hours.

Substitution Effect:Substitution Effect: As wages rise, individuals As wages rise, individuals will seek to work more - substituting away from will seek to work more - substituting away from leisure - because the opportunity cost of leisure leisure - because the opportunity cost of leisure becomes higher as wage rates rise.becomes higher as wage rates rise.

Income Effect:Income Effect: As wages rise, higher wages As wages rise, higher wages bring higher incomes, which lead workers to bring higher incomes, which lead workers to demand more of all normal goods. Leisure is a demand more of all normal goods. Leisure is a normal good and, in order to “buy” more leisure, normal good and, in order to “buy” more leisure, workers pay the opportunity cost of giving up the workers pay the opportunity cost of giving up the income from some work hours.income from some work hours.


Income and Substitution EffectsIncome and Substitution EffectsIncome and Substitution EffectsIncome and Substitution EffectsW

age

Rat

e

Quantity of Labor

Labor Supply

Reservation Wage

Income Effect Dominates

Substitution Effect Dominates


Effect of a Decrease in Non-labor Effect of a Decrease in Non-labor IncomeIncome

Effect of a Decrease in Non-labor Effect of a Decrease in Non-labor IncomeIncome

Wag

e R

ate

Quantity of Labor

Initial SupplySupply if less income from other sources

Change in Reservation Wage


23.323.3SOURCES OF EARNINGS SOURCES OF EARNINGS DIFFERENTIALSDIFFERENTIALS

23.323.3SOURCES OF EARNINGS SOURCES OF EARNINGS DIFFERENTIALSDIFFERENTIALSo Different jobs have their own advantages Different jobs have their own advantages

and disadvantages.and disadvantages.o Safe jobs are more attractive than Safe jobs are more attractive than

dangerous jobs. dangerous jobs. o Higher pay in the latter jobs, can Higher pay in the latter jobs, can

equalize their attractiveness relative to equalize their attractiveness relative to the former jobs.the former jobs.

o Such increases are in pay are termed Such increases are in pay are termed compensating differences.compensating differences.

o Different jobs have their own advantages Different jobs have their own advantages and disadvantages.and disadvantages.

o Safe jobs are more attractive than Safe jobs are more attractive than dangerous jobs. dangerous jobs.

o Higher pay in the latter jobs, can Higher pay in the latter jobs, can equalize their attractiveness relative to equalize their attractiveness relative to the former jobs.the former jobs.

o Such increases are in pay are termed Such increases are in pay are termed compensating differences.compensating differences.


Explaining Labor DifferentialsExplaining Labor DifferentialsExplaining Labor DifferentialsExplaining Labor Differentials

•Occupational choiceOccupational choice

•Compensating wage differentialsCompensating wage differentials

•UnionsUnions

•Human capitalHuman capital

•DiscriminationDiscrimination

•Luck and other factorsLuck and other factors

•Occupational choiceOccupational choice

•Compensating wage differentialsCompensating wage differentials

•UnionsUnions

•Human capitalHuman capital

•DiscriminationDiscrimination

•Luck and other factorsLuck and other factors


Labor UnionsLabor UnionsLabor UnionsLabor Unions

Workers join labor unions to improve their pay Workers join labor unions to improve their pay and work environments.and work environments.

The decline in overall union membership mask The decline in overall union membership mask the overall concentration of union membership the overall concentration of union membership in several key industries.in several key industries.

Global competition is probably the most Global competition is probably the most important factor behind the low percentage of important factor behind the low percentage of union workers in the economy.union workers in the economy.

Workers join labor unions to improve their pay Workers join labor unions to improve their pay and work environments.and work environments.

The decline in overall union membership mask The decline in overall union membership mask the overall concentration of union membership the overall concentration of union membership in several key industries.in several key industries.

Global competition is probably the most Global competition is probably the most important factor behind the low percentage of important factor behind the low percentage of union workers in the economy.union workers in the economy.



Once a union is certified, a union engages in Once a union is certified, a union engages in collective bargaining.collective bargaining.These negotiations with employers are aimed at These negotiations with employers are aimed at

improving working conditions, pay, and benefits. improving working conditions, pay, and benefits.

Union bargaining power refers to the ability of Union bargaining power refers to the ability of a union to win an agreement with greater a union to win an agreement with greater wages and benefits for its members.wages and benefits for its members.

The primary weapon providing bargaining The primary weapon providing bargaining power to unions is the power to unions is the strike, or work stoppage.strike, or work stoppage.

Once a union is certified, a union engages in Once a union is certified, a union engages in collective bargaining.collective bargaining.These negotiations with employers are aimed at These negotiations with employers are aimed at

improving working conditions, pay, and benefits. improving working conditions, pay, and benefits.

Union bargaining power refers to the ability of Union bargaining power refers to the ability of a union to win an agreement with greater a union to win an agreement with greater wages and benefits for its members.wages and benefits for its members.

The primary weapon providing bargaining The primary weapon providing bargaining power to unions is the power to unions is the strike, or work stoppage.strike, or work stoppage.


Labor UnionsLabor Unions

PERCENTAGE OF WORKERS BELONGING TO A UNION BY MAJOR INDUSTRY

INDUSTRY PERCENTPrivate wage and salary workers 9.0Agriculture 1.6Mining 12.3Construction 18.4Manufacturing 14.6Transportation and public utilities 23.5Wholesale and retail trade 4.7Finance, insurance, and real estate 2.1Services 5.9Government workers 37.5


Labor UnionsLabor Unions

PERCENTAGE OF WORKERS BELONGING TO A UNION BY OCCUPATION

OCCUPATION PERCENT

Managerial and professional speciality 12.8Technical, sales, and administrative support 8.9Service occupations

13.3Precision production, craft, and repair 21.3Operators, fabricators, and laborers

19.9Farming, forestry, and fishing

4.6


Another union weapon is the Another union weapon is the boycott,boycott, which is a campaign to persuade union which is a campaign to persuade union members and the public to refrain from members and the public to refrain from purchasing the output of a firm with purchasing the output of a firm with which the union has a disagreement.which the union has a disagreement.

Higher pay means fewer jobs offered by Higher pay means fewer jobs offered by unionized employers.unionized employers. This increases the supply of labor to similar This increases the supply of labor to similar

jobs at non-union employers, and drives jobs at non-union employers, and drives down nonunion wages.down nonunion wages.

Another union weapon is the Another union weapon is the boycott,boycott, which is a campaign to persuade union which is a campaign to persuade union members and the public to refrain from members and the public to refrain from purchasing the output of a firm with purchasing the output of a firm with which the union has a disagreement.which the union has a disagreement.

Higher pay means fewer jobs offered by Higher pay means fewer jobs offered by unionized employers.unionized employers. This increases the supply of labor to similar This increases the supply of labor to similar

jobs at non-union employers, and drives jobs at non-union employers, and drives down nonunion wages.down nonunion wages.



Human Capital and SignalingHuman Capital and SignalingHuman Capital and SignalingHuman Capital and Signaling

Human capitalHuman capital is the knowledge, skills, and is the knowledge, skills, and other productivity enhancing attributes other productivity enhancing attributes embodied within individual workers. embodied within individual workers.

Building human capital involves out of pocket Building human capital involves out of pocket explicit cost, as well as opportunity cost of explicit cost, as well as opportunity cost of forgone earnings. forgone earnings.

The returns to the investment in a college The returns to the investment in a college diploma have increased over the past twenty diploma have increased over the past twenty years. years.


Human Capital and SignalingHuman Capital and SignalingHuman Capital and SignalingHuman Capital and Signaling

The The signaling hypothesissignaling hypothesis provides provides an alternative to the human capital an alternative to the human capital explanation for greater earnings by explanation for greater earnings by college graduates. college graduates.

Signaling refers to the assumption Signaling refers to the assumption that education provides information that education provides information (signals) to employers about the (signals) to employers about the attributes of job applicants.attributes of job applicants.


Discrimination and EarningsDiscrimination and EarningsDiscrimination and EarningsDiscrimination and Earnings

• Discrimination Discrimination occurs when a worker who is occurs when a worker who is productive as other workers doing the same job productive as other workers doing the same job is paid less because of race, gender, color, is paid less because of race, gender, color, religion, or natural origin.religion, or natural origin.

• Discrimination is illegal in the United States.Discrimination is illegal in the United States.• Pre-market discriminationPre-market discrimination exist when a group exist when a group

experiences systematic discrimination prior to experiences systematic discrimination prior to entering the labor market.entering the labor market.

• When applicants are judged by the average When applicants are judged by the average characteristics of their racial or ethnic group, characteristics of their racial or ethnic group, the have experienced the have experienced statistical discrimination.statistical discrimination.

• Discrimination Discrimination occurs when a worker who is occurs when a worker who is productive as other workers doing the same job productive as other workers doing the same job is paid less because of race, gender, color, is paid less because of race, gender, color, religion, or natural origin.religion, or natural origin.

• Discrimination is illegal in the United States.Discrimination is illegal in the United States.• Pre-market discriminationPre-market discrimination exist when a group exist when a group

experiences systematic discrimination prior to experiences systematic discrimination prior to entering the labor market.entering the labor market.

• When applicants are judged by the average When applicants are judged by the average characteristics of their racial or ethnic group, characteristics of their racial or ethnic group, the have experienced the have experienced statistical discrimination.statistical discrimination.


23.423.4INCOME INEQUALITYINCOME INEQUALITY23.423.4INCOME INEQUALITYINCOME INEQUALITY

Income inequalityIncome inequality refers to differences in earnings. refers to differences in earnings. Low wages or lack of a job can create Low wages or lack of a job can create poverty.poverty.Poverty is associated with deprivation, which Poverty is associated with deprivation, which motivates government transfer programs to the motivates government transfer programs to the poor.poor.Transfer programsTransfer programs seek to preserve a minimum seek to preserve a minimum standard of living for the poor and are referred to standard of living for the poor and are referred to as a safety net.as a safety net.Most households in poverty are very close to the Most households in poverty are very close to the government set safety net.government set safety net.

Income inequalityIncome inequality refers to differences in earnings. refers to differences in earnings. Low wages or lack of a job can create Low wages or lack of a job can create poverty.poverty.Poverty is associated with deprivation, which Poverty is associated with deprivation, which motivates government transfer programs to the motivates government transfer programs to the poor.poor.Transfer programsTransfer programs seek to preserve a minimum seek to preserve a minimum standard of living for the poor and are referred to standard of living for the poor and are referred to as a safety net.as a safety net.Most households in poverty are very close to the Most households in poverty are very close to the government set safety net.government set safety net.


Occupational SegregationOccupational SegregationOccupational SegregationOccupational Segregation

•Occupational segregationOccupational segregation refers to the refers to the concentration of women workers in certain concentration of women workers in certain jobs (e.g., nursing and teaching). jobs (e.g., nursing and teaching). (Commonly cited as evidence that women (Commonly cited as evidence that women are discriminated against in hiring)are discriminated against in hiring)

•Women’s earnings are also affected by Women’s earnings are also affected by discontinuous labor force participation, discontinuous labor force participation, which occurs when a person leaves and which occurs when a person leaves and later reenters the labor force.later reenters the labor force.

•Occupational segregationOccupational segregation refers to the refers to the concentration of women workers in certain concentration of women workers in certain jobs (e.g., nursing and teaching). jobs (e.g., nursing and teaching). (Commonly cited as evidence that women (Commonly cited as evidence that women are discriminated against in hiring)are discriminated against in hiring)

•Women’s earnings are also affected by Women’s earnings are also affected by discontinuous labor force participation, discontinuous labor force participation, which occurs when a person leaves and which occurs when a person leaves and later reenters the labor force.later reenters the labor force.


MALE-DOMINATED OCCUPATIONS (PERCENTAGE OF WORKERS WHO ARE MALES)

Automobile mechanics 98.8 Carpenters 98.3 Firefighters 97.0 Airplane pilots and navigators 96.3 Truck drivers 95.3 Surveyors 92.6 Engineers 90.1



FEMALE-DOMINATED OCCUPATIONS(PERCENTAGE OF WORKERS WHO ARE FEMALES)

Dental hygienists 98.5Prekindergarten and kindergarten teachers 98.4Child care workers 97.5Receptionists 96.7Cleaners and servants 94.8Cleaners and servants 94.8Secretaries 94.6Bookkeepers and accounting clerks 92.2



Year

Earnings of White Males

Earnings of Black Males

Earnings of Black Males as a

Percentage of White Male

Earnings

Earnings of White

Females

Earnings of White Females as a Percentage of White Male

Earnings

Earnings of Black

Females

Earnings of Black Females as a Percentage of White Male

Earnings 1982 $38,209 $27,138 71% $23,798 62% $21,270 56%1985 39,430 27,580 70 25,294 64 22,391 571988 39,769 29,150 73 26,487 67 23,734 601991 38,338 28,027 73 26,698 70 23,699 621994 37,339 28,090 75 27,502 74 23,743 641997 38,645 28,779 74 28,322 73 24,357 632000 40,350 30,886 76 29,661 74 25,736 64

MEDIAN EARNINGS OF YEAR-ROUND, FULL-TIME WORKERS BY RACE AND GENDER



23.523.5OTHER INCOMESOTHER INCOMES23.523.5OTHER INCOMESOTHER INCOMES

Economic rentEconomic rent refers to earnings in refers to earnings in excess of opportunity costs. excess of opportunity costs. The incredible earnings reaped by The incredible earnings reaped by many celebrities and superstar athletes many celebrities and superstar athletes are an example of economic rent.are an example of economic rent.When demand is high and supply is When demand is high and supply is fixed the result is sky-high earnings.fixed the result is sky-high earnings.

Economic rentEconomic rent refers to earnings in refers to earnings in excess of opportunity costs. excess of opportunity costs. The incredible earnings reaped by The incredible earnings reaped by many celebrities and superstar athletes many celebrities and superstar athletes are an example of economic rent.are an example of economic rent.When demand is high and supply is When demand is high and supply is fixed the result is sky-high earnings.fixed the result is sky-high earnings.


Economic RentEconomic RentEconomic RentEconomic Rent

Quantity of Labor

Do l

lar s

Demand

Hourly Earnings

Opportunity Cost

Supply by Someone with Unique Talents

Quantity Supplied

Economic Rent

•

•

• A change in demand would affect rent,but not quantity.


Interest – Keeping Wealth Interest – Keeping Wealth ProductiveProductive

Interest – Keeping Wealth Interest – Keeping Wealth ProductiveProductive

InterestInterest is the price paid for the use of is the price paid for the use of money.money.Interest is usually expressed in terms of a Interest is usually expressed in terms of a percentage, the percentage, the interest rate.interest rate.The payment of interest to lenders The payment of interest to lenders promotes savings, which is used to pay promotes savings, which is used to pay for investments in physical and human for investments in physical and human capital, that improve standards of living.capital, that improve standards of living.

InterestInterest is the price paid for the use of is the price paid for the use of money.money.Interest is usually expressed in terms of a Interest is usually expressed in terms of a percentage, the percentage, the interest rate.interest rate.The payment of interest to lenders The payment of interest to lenders promotes savings, which is used to pay promotes savings, which is used to pay for investments in physical and human for investments in physical and human capital, that improve standards of living.capital, that improve standards of living.


Profit – Motivating The Profit – Motivating The EntrepreneurEntrepreneur

Profit – Motivating The Profit – Motivating The EntrepreneurEntrepreneur

Profit motivates entrepreneurs, who Profit motivates entrepreneurs, who perform the following functions…. perform the following functions…. Combining resourcesCombining resourcesInnovationInnovationTaking risksTaking risks

Entrepreneurs face the possibility losses Entrepreneurs face the possibility losses as well as profits.as well as profits.

Profit motivates entrepreneurs, who Profit motivates entrepreneurs, who perform the following functions…. perform the following functions…. Combining resourcesCombining resourcesInnovationInnovationTaking risksTaking risks

Entrepreneurs face the possibility losses Entrepreneurs face the possibility losses as well as profits.as well as profits.


23.6 EXPLORE & APPLY23.6 EXPLORE & APPLYThe Benefits of SchoolingThe Benefits of Schooling23.6 EXPLORE & APPLY23.6 EXPLORE & APPLYThe Benefits of SchoolingThe Benefits of Schooling

o Balanced against the cost of schooling are Balanced against the cost of schooling are the benefits.the benefits.

o The tangible benefits of a College The tangible benefits of a College education are the increases in the ability education are the increases in the ability to consume goods and services.to consume goods and services.o A higher lifetime income.A higher lifetime income.o Greater job security.Greater job security.o Relative safe, pleasant working environment Relative safe, pleasant working environment

that contributes to better health.that contributes to better health.

o Balanced against the cost of schooling are Balanced against the cost of schooling are the benefits.the benefits.

o The tangible benefits of a College The tangible benefits of a College education are the increases in the ability education are the increases in the ability to consume goods and services.to consume goods and services.o A higher lifetime income.A higher lifetime income.o Greater job security.Greater job security.o Relative safe, pleasant working environment Relative safe, pleasant working environment

that contributes to better health.that contributes to better health.


Earnings and EducationEarnings and EducationEarnings and EducationEarnings and Education

Averageyearly

Earnings

$80,000

$60,000

$40,000

$20,000

$0Less than 9th

grade

9th to 12th

grade (no

diploma)

High school

graduate

Some college,

no degree

Associate's degree

Master's degree

Professional degree

Doctorate degree

Bachelor's degree


Three Age/Earnings ProfilesThree Age/Earnings ProfilesThree Age/Earnings ProfilesThree Age/Earnings Profiles

Real Earnings

Age

Dropouts

High school graduate

College graduate

They sacrifice early

To earn more later


Earnings by Age GroupEarnings by Age GroupEarnings by Age GroupEarnings by Age Group

MEDIAN AGE GROUP HOURLY

EARNINGS16 to 19 years $ 6.7519 to 24 years 8.32

25 to 34 years 10.8235 to 44 years 11.9845 to 54 years 12.1855 to 64 years 11.2165 years and over 8.37


Terms Along the WayTerms Along the WayTerms Along the WayTerms Along the Way

• reservation wagereservation wage

• substitution effectsubstitution effect

• income effectincome effect

• compensating compensating wage differentialswage differentials

• collective collective bargainingbargaining

• reservation wagereservation wage

• substitution effectsubstitution effect

• income effectincome effect

• compensating compensating wage differentialswage differentials

• collective collective bargainingbargaining

• signalingsignaling

• poverty linepoverty line

• occupational occupational segregationsegregation

• economic renteconomic rent

• interest rateinterest rate

• signalingsignaling

• poverty linepoverty line

• occupational occupational segregationsegregation

• economic renteconomic rent

• interest rateinterest rate


Test YourselfTest YourselfTest YourselfTest Yourself

1.1. An individual’s labor supply curve will An individual’s labor supply curve will start at the point called the start at the point called the

a.a. backward-bending part.backward-bending part.

b.b. reservation wage.reservation wage.

c.c. amount of non-labor income.amount of non-labor income.

d.d. income effect.income effect.

1.1. An individual’s labor supply curve will An individual’s labor supply curve will start at the point called the start at the point called the

a.a. backward-bending part.backward-bending part.

b.b. reservation wage.reservation wage.

c.c. amount of non-labor income.amount of non-labor income.

d.d. income effect.income effect.



2.2. The job most likely to offer a significant The job most likely to offer a significant compensating wage differential is compensating wage differential is

a.a. baker.baker.

b.b. accountant.accountant.

c.c. computer repair person.computer repair person.

d.d. police officer.police officer.

2.2. The job most likely to offer a significant The job most likely to offer a significant compensating wage differential is compensating wage differential is

a.a. baker.baker.

b.b. accountant.accountant.

c.c. computer repair person.computer repair person.

d.d. police officer.police officer.



3.3. Labor unions in the United States Labor unions in the United States represent about __________ percent of represent about __________ percent of workers.workers.

a.a. 44.44.

b.b. 33.33.

c.c. 2222

d.d. 1111

3.3. Labor unions in the United States Labor unions in the United States represent about __________ percent of represent about __________ percent of workers.workers.

a.a. 44.44.

b.b. 33.33.

c.c. 2222

d.d. 1111



4.4. A right to work lawA right to work law

a.a. has no effect on union bargaining has no effect on union bargaining power.power.

b.b. increases union bargaining power.increases union bargaining power.

c.c. decreases union bargaining powerdecreases union bargaining power

d.d. has unpredictable effects on union has unpredictable effects on union bargaining power.bargaining power.

4.4. A right to work lawA right to work law

a.a. has no effect on union bargaining has no effect on union bargaining power.power.

b.b. increases union bargaining power.increases union bargaining power.

c.c. decreases union bargaining powerdecreases union bargaining power

d.d. has unpredictable effects on union has unpredictable effects on union bargaining power.bargaining power.



5.5. From a signaling point of view, earning a From a signaling point of view, earning a college degree willcollege degree will

a.a. have no effect on earnings.have no effect on earnings.

b.b. decrease earnings.decrease earnings.

c.c. increase earnings because college increases increase earnings because college increases human capital.human capital.

d.d. Increase earnings because a college degree is Increase earnings because a college degree is associated with personal characteristics associated with personal characteristics employers value.employers value.

5.5. From a signaling point of view, earning a From a signaling point of view, earning a college degree willcollege degree will

a.a. have no effect on earnings.have no effect on earnings.

b.b. decrease earnings.decrease earnings.

c.c. increase earnings because college increases increase earnings because college increases human capital.human capital.

d.d. Increase earnings because a college degree is Increase earnings because a college degree is associated with personal characteristics associated with personal characteristics employers value.employers value.



6.6. For blacks to have lower earnings than For blacks to have lower earnings than whites,whites,

a.a. employers must practice wage discrimination.employers must practice wage discrimination.

b.b. statistical discrimination cannot be practiced statistical discrimination cannot be practiced by employers.by employers.

c.c. pre-market discrimination could be the cause.pre-market discrimination could be the cause.

d.d. blacks must be more productive than whites.blacks must be more productive than whites.

6.6. For blacks to have lower earnings than For blacks to have lower earnings than whites,whites,

a.a. employers must practice wage discrimination.employers must practice wage discrimination.

b.b. statistical discrimination cannot be practiced statistical discrimination cannot be practiced by employers.by employers.

c.c. pre-market discrimination could be the cause.pre-market discrimination could be the cause.

d.d. blacks must be more productive than whites.blacks must be more productive than whites.


The End!The End!Next Chapter 24Next Chapter 24““Public Goods, Public Goods,

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