Labor policy exam 2

Migration occurs because:

workers move from regions with lower wages to regions with higher wages.

When workers migrate to a high wage region:

the labor supply in that region increases, which causes wages to decrease and employment to increase.

When workers have a low wage region:

the labor supply in that region decreases, which causes wages to increase and employment to decrease.

Migration continues until:

wage equalizes across regions

The labor market does not have a single wage because:

jobs and workers differ in characteristics

Workers care about both wages and job risk so:

their utility depends on both factors

Indifference curves show:

The tradeoff between wages and the probability of injury

what is compensating differential

When risky jobs must offer higher wages to attract workers

The supply of labor to a risky job is upward sloping because:

higher wages are required to attract more workers.

The demand for risky jobs is downward sloping because:

firms will offer fewer risky jobs if wages must be high.

In equilibrium, the compensating wage differential is determines where:

labor supply equals labor demand.

If some workers prefer risky jobs, the compensating differential:

meaning they accept lower wages.

Human capital refers to:

the skills, knowledge, and abilities that workers possess.

Workers increase their human capital through:

education and experience over time.

Education is positively correlated with:

earnings, labor force participation, and lower unemployment rates.

Present value is used to

compare earnings received at different points in time.

The present value formula:

discounts future income based on a discount rate and time period.

Attending college involves:

costs such as tuition and foregone wages.

Individuals choose to invest in education if:

the present value of future earnings exceeds the costs

Even if college has a positive return:

many individuals face financial constraints because benefits occur in the future.

Wages differ across workers due to:

Differences in productivity and returns to skills.

The wage distribution is positively skewed, meaning:

meaning a small number of workers earn very high incomes.

Human capital investments vary across workers, which contributes to

wage differences

Younger workers tend to earn less because:

they are still accumulating human capital

Older workers earn more because:

They receive returns from past investments

There is a positive relationship between ability and human capital investment, which increases:

wage inequality

The Lorenz curve is used to:

represent income distribution

The Gini coefficient measures inequality on a scale from 0 to 1:

where 0 represents perfect equality and 1 represents perfect inequality.

Discrimination occurs when:

individuals are treated differently based on characteristics such as race or gender.

A wage gap exists between:

groups, and part of this gap may be due to discrimination.

Taste-based discrimination occurs when:

employers have a preference against a certain group

Statistical discrimination occurs when

group characteristics are used to predict productivity

The discrimination coefficient represents

the extent of employer prejudice.

Discrimination leads to:

inefficiency because firms may hire fewer or less productive workers

In competitive markets, discrimination:

reduces profits for firms that engage in it.

A non-discriminating firm will:

hire workers based solely on productivity and wages.

Labor unions aim to:

maximize the well-being of their members.

Unions can only exist when

firms earn above-normal profits.

Unions influence:

wages, working conditions, and employment contracts

Union membership in the public sector increased significantly in the 1970s and:

has remained relatively high.

Unionization rates differ across countries due to:

differences in political influence.

A worker joins a union if:

the benefits exceed the costs, including union dues.

Higher union wages can lead to:

reduced employment because firms face higher labor costs

If labor demand is inelastic:

employment decreases only slightly when wages increase