Download Labor Economics Study Guide: Compensation, Efficiency Wage, Differentials, and More and more Exams Economics in PDF only on Docsity! Labor Economics Exam 2 study Guide Questions with Answers Best Rated Total compensation - Correct answer consists of wage and fringe benefits. Fringe benefits include legally required benefits, such as Social Security contributions, and voluntary benefits, such as paid leaves, insurance benefits, and private pensions. About 30 percent of total pay takes the form of fringe benefits, broadly defined optimal or utility maximizing combination of wages and fringe benefits - Correct answer by selecting the wage-fringe mix that enables the worker to attain the highest possible indifference curve. factors that explain the historical growth of fringe benefits - Correct answer the tax advantages they confer; (2) the scale economies resulting from their collective purchase; (3) their ability to reduce job turnover and motivate workers; (4) the sensitivity of fringe benefits, such as medical and dental care, to increases in income; (5) legal mandates by the federal government; and (6) the historical growth of union contracts, in which fringe benefits are relatively large principal-agent problem - Correct answer when agents pursue their own goals rather than the objectives of the principals (principles =firms agents = workers) Tournament pay - Correct answer an extraordinarily high reward to the top performer and is designed to maximize performance by all who are striving to achieve the top spot efficiency wage - Correct answer a wage above the market-clearing wage why a variety of wage differentials exist - Correct answer risk of job injury and death, (b) fringe benefits, (c) job status, (d) job location, (e) the regularity of earnings, and (f) the prospect for wage advancement. and skill. Efficiency wage theories - Correct answer Theories predict that wages will be higher where it is difficult to monitor the performance of workers, where the costs to employers of mistakes by individual workers are large, and where high labor turnover significantly reduces productivity hedonic theory of wages - Correct answer hypothesizes that workers who possess differing subjective preferences for wages compared to nonwage job amenities seek optimal matches with employers who differ in their costs of providing those nonwage attributes. Labor market immobility’s - Correct answer geographic, institutional, and sociological— also help explain persistent earnings differences among workers. tax advantages for providing fringe benefits to employees. - Correct answer reduces the taxes that employers pay.(employers pay half the SS tax) overall substituting fringe benefits for wages will reduce the total amount of taxes paid. advantages in the form of economies of scale for producing fringe benefits. - Correct answer economies of scale for employers have rotated out the is profit curve for fringe benefits which makes supply fringe benefits cheaper than supplying wages. efficiency considerations. - Correct answer providing fringe benefits will decrease turnover rate which can be very expensive to train new employees. piece rates - Correct answer type of compensations in which the employee pays per the number of units produced ( may be difficult to set rate, firm may have to pay a premium, workers may increase quantity over quality) Perfectly Competitive Labor Market - Correct answer Jobs offered are identical, Workers are identical, costless information and labor mobility firms is profit curves - Correct answer when a curve is steeper this means that job safety is expensive Compensating Differentials - Correct answer Consist of extra pay that an employer must provide a worker For some undesirable job characteristic that does not exist in alternative employment The wage differential is caused by A decreased labor supply for the job that has the undesirable job characteristic and An increased labor supply for the alternative employment Non-Competing Groups - Correct answer Individuals differ in the type, amount, and quality of their human capital In the short run these differences in human capital generate wage differentials In the long run the wage differentials cause individuals to move toward higher paying jobs to some extent Assuming workers and jobs are identical, if information is perfect and job search and migration are costless, then - Correct answer labor will flow among employers until all wages are equal Assuming workers and jobs are identical, if information is perfect but job search and migration are costly, then - Correct answer labor may or may not flow among employers
