Question 1

It is increasingly clear that technological change is the only explanation for an expanding wage gap between high-skill and low-skill workers.

Accepted Answer

Other factors, such as globalization, changes in labor market institutions, education policies, and shifts in demand for different skill sets, also contribute to the expanding wage gap between high-skill and low-skill workers, alongside technological change.

Question 2

Some economists suggest that increased international trade with countries that have a greater proportion of unskilled workers has led to an expanding wage gap between high-skill and low-skill workers in the United States.

Accepted Answer

This phenomenon is often explained by the Stolper-Samuelson theorem, which posits that trade can benefit the abundant factor of production (in this case, high-skill labor in the US) while harming the scarce factor (low-skill labor), thus potentially widening the wage gap between high-skill and low-skill workers.

Question 3

The fact that doctors are paid more than economics professors is an example of a compensating differential.

Accepted Answer

A compensating differential is a payment made to workers in jobs that are considered undesirable or dangerous. In this case, doctors are paid more than economics professors because their job is considered more desirable.

Question 4

Traci is a nurse, and she gets paid an additional $1.00 per hour for agreeing to work the night shift. Carol is also a nurse, but she works the day shift and does not get paid this extra dollar per hour. This difference in pay is an example of a compensating differential.

Accepted Answer

A compensating differential refers to the difference in wages meant to offset the desirability or undesirability of a job attribute, such as working hours. In this case, the extra $1.00 per hour for the night shift compensates for the less desirable aspect of working at night.

Question 5

One hypothesis to explain the changing gap in wages between unskilled and skilled workers in the United States is that international trade has altered the relative demands for skilled and unskilled workers.

Accepted Answer

International trade can lead to a shift in demand towards more skilled labor due to the competitive pressure and technological advancements associated with globalization, potentially widening the wage gap between skilled and unskilled workers.

Question 6

Human capital refers to the physical tools and equipment that workers use on their jobs to enhance their productivity.

Accepted Answer

Human capital refers to the intangible assets such as skills, knowledge, and experience possessed by an individual or population, which can enhance their productivity and economic value, not the physical tools and equipment.

Question 7

A compensating differential is a difference in wages due to higher levels of education or other forms of human capital.

Accepted Answer

A compensating differential refers to the difference in wages that arises to compensate workers for non-monetary aspects of different jobs, such as risk, discomfort, or undesirable location, rather than differences in education or human capital.

Question 8

The statement that "the rich get richer, and the poor get poorer" is supported by evidence of an expanding wage gap between high-skill and low-skill workers.

Accepted Answer

This statement is supported by evidence showing that high-skill workers often experience wage growth at a faster rate than low-skill workers, contributing to an expanding wage gap and reinforcing the notion that "the rich get richer, and the poor get poorer."

Question 9

The changing gap in wages between unskilled and skilled workers is most likely related to a larger increase in demand for unskilled occupations relative to skilled occupations.

Accepted Answer

The changing gap in wages between unskilled and skilled workers is typically attributed to a larger increase in demand for skilled occupations relative to unskilled occupations, often driven by technological advancements and globalization.

Question 10

Over the past 30 years, the number of jobs in the United States requiring skilled labor has been declining as foreign countries steal these jobs away from the U.S. As a result, the domestic demand for skilled labor has been falling and the wage gap between skilled and unskilled labor has been narrowing.

Accepted Answer

Over the past 30 years, the demand for skilled labor in the United States has actually increased due to technological advancements and a shift towards a knowledge-based economy. This has led to a widening wage gap between skilled and unskilled labor, as jobs requiring higher levels of education and skill often pay more.

Question 11

A computer is an example of human capital.

Accepted Answer

Human capital refers to the economic value of a worker's experience and skills, including education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality. A computer is considered physical or technological capital, not human capital.

Question 12

As a result of an increase in the earnings gap between skilled and unskilled jobs, the incentive to get a college education has been declining.

Accepted Answer

The increase in the earnings gap between skilled and unskilled jobs actually increases the incentive to get a college education, as higher education is often associated with acquiring the skills needed for higher-paying, skilled positions.

Question 13

Education and on-the-job training are sources of human capital.

Accepted Answer

Human capital refers to the economic value of a worker's experience and skills, which includes education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality. Education and on-the-job training are key components in improving an individual's skill set and productivity, thereby increasing their human capital.

Question 14

Higher levels of human capital are correlated with higher earnings because firms are willing to pay more for better-educated workers who have higher marginal productivities.

Accepted Answer

Higher levels of human capital, such as education and skills, increase a worker's productivity, leading firms to pay more for these more productive employees.

Question 15

The human-capital theory of education maintains that workers who complete specific levels of education enhance their productivity through education.

Accepted Answer

Human-capital theory posits that education increases the skills and knowledge of workers, thereby enhancing their productivity and potentially leading to higher earnings.

Question 16

A compensating differential refers to a difference in wages that arises from nonmonetary characteristics.

Accepted Answer

A compensating differential is the difference in wages that compensates workers for nonmonetary aspects of different jobs, such as risk, discomfort, or inconvenient hours.

Question 17

The economic theory of labor markets suggests that wages are determined by labor supply and labor demand.

Accepted Answer

The economic theory of labor markets, specifically the neoclassical model, posits that wages are determined by the interaction of labor supply (workers offering their skills and time) and labor demand (employers seeking to hire workers), with the equilibrium wage balancing the quantity of labor supplied and demanded.

Question 18

Compensating differentials are differences in wages related to the characteristics of a job.

Accepted Answer

Compensating differentials refer to the differences in wages that arise to offset the desirability or undesirability of certain job characteristics, such as risk, effort, or location.

Question 19

John has financial assets totaling $1.5 million, and he plans to use these assets to start his own business. Since John owns these funds and will not need to borrow to start his business, these assets are considered human capital.

Accepted Answer

Human capital refers to the economic value of a worker's experience and skills, including education, training, intelligence, skills, health, and other things employers value such as loyalty and punctuality. Financial assets, like the $1.5 million John has, are considered financial capital, not human capital.

Question 20

Daryn earns a higher salary than his friend Nick because Daryn is willing to work on the loading dock, whereas Nick prefers to work in an air-conditioned office. The difference in salary could illustrate a compensating differential.

Accepted Answer

The concept of a compensating differential refers to the difference in wages that arises to compensate workers for the desirability or undesirability of a job attribute, such as working conditions. In this case, Daryn earns more because he is willing to work under less desirable conditions (the loading dock) compared to Nick, who prefers a more comfortable work environment (air-conditioned office).

Quiz 19: Earnings and Discrimination