QUESTION 1

1. When I was an undergraduate at Columbia there was a swimming test that was, in principle, required for graduation.
2. (It was not that difficult, you simply had to swim the length of the pool three times!)Those students who failed the
3. test were put in a basic swimming class.
4. Suppose that passing the swimming test were in fact rigidly enforced. But John is afraid to swim.He meets all of the
5. regular academic requirements but is denied his degree.He gets a job paying $50,000 after graduation.
6. Now suppose that in a few years the requirement is waived.John gets his degree.And his salary doubles!This
7. evidence:
9. a.is not consistent with the human capital model but is consistent with the signaling model
10. b.is consistent with the human capital model and the signaling model
12. c.is consistent with the human capital model but not the signaling model
13. d.is not consistent with either the human capital or the signaling model

3 points

QUESTION 2

1. The Jovanovic 'matching' model implies that:
3. a.the earnings of workers with seniority is higher than those without seniority because of non-random
4. attrition
6. b.the earnings of all workers rise with seniority due to the acquisition of specific training
7. c.firms pay more over time because they cannot observe the productivity of individual workers
9. d.the earnings of matchers rise over time due to the acquisition of specific training; the earnings of non-matchers do not rise over time because they do not acquire specific training

3 points

QUESTION 3

1. Consider the labor demand model presented in class. Let w denote the wage and MRPL denote the marginal revenue product of labor.If
2. MRPL > w then the firm:
4. a.the firm will cut employment
6. b.will raise its utilization of capital
8. c.the firm will maintain employment at its current level because profits are maximized
10. d.the firm will expand employment

3 points

QUESTION 4

1. Suppose that the equilibrium wage for unskilled workers is equal to $11 and the minimum wage is set at $14/hour.In this case the minimum
2. wage will:
4. a.cause employment to rise
6. b.cause employment to fall
8. c.have no impact on employment
10. d.create a shortage of labor

3 points

QUESTION 5

1. A signal:
3. a.does not advertise productivity and does not raise productivity
6. b.advertises productivity but does not raise productivity
8. c.does not advertise productivity but raises productivity
10. d.advertises productivity and also raises productivity

3 points

QUESTION 6

1. Suppose that the world is divided into two types of workers. The two types are "grubs" and "hogs".The term "hog" means "hands-on guys".(I have essentially made up thetermgrubfor this problem.When I was an undergraduate at Columbia this term referred to someone who studied all the time.)
2. Assume that the cost of schooling for both groups is $20,000.There is no discounting as this is a one period model.
3. Consider a grub.If he does not attend college he will earn $70,000.If he attends college he will earn $100,000.
4. Now consider a hog.If he does not attend college he will earn $90,000.If he attends college he will earn $100,000.
6. Suppose that an economist collects the data but does not know that there are two distinct groups in the population.So the issue is whether or not he will accurately measure the return to schooling for the two groups.
8. Based on the information above, it follows that the economist:
10. a.will accurately measure the return to schooling for the hogs
12. b.will overestimate the return to schooling for the hogs
14. c.may overestimate or underestimate the return to schooling for the hogs
16. d.will underestimate the return to schooling for the hogs

3 points

QUESTION 7

1. Let MRPL denote the marginal revenue product of labor and let w denote the wage. Assume that there is a signaling equilibrium. Which
2. of the following statements is true in the signaling model?
5. a.w > MRPL because firms cannot observe the productivity of an individual worker
7. b.w = MRPL even though firms cannot observe the productivity of an individual worker
9. c.w > MRPL because firms can observe the productivity of an individual worker
11. d.w < MRPL because firms cannot observe the productivity of an individual worker

3 points

QUESTION 8

1. The marginal product of labor is:
2. a.the dollar cost of an additional unit of labor
4. b.the output obtained by using one more unit of labor
6. c.the revenue gained by employing one more unit of input
8. d.
9. the revenue gained by selling one more unit of output

3 points

QUESTION 9

1. Job tenure is positively associated with earnings in the:
3. a.human capital model and the Lazear contract model
4. b.human capital model and the cobweb model
5. c.cobweb model and the Lazear contract model
7. d.Spence signaling model and the human capital model

3 points

QUESTION 10

1. John and Jim work at the same firm.They are the same age and are equally skilled.Each one has the same amount of schooling and the same
2. amount of total work experience. However, John has been at the firm for ten years whereas Jim has been at this firm for only two years.
3. According to the theory of firm-specific training, it follows that:
6. a.John will be paid more than Jim; John is more likely to quit
7. b.John will be paid more than Jim; Jim is more likely toquit
8. c.John will be paid less than Jim;John is more likely to quit
9. d.John will be paid less than Jim;Jim is more likely to quit

3 points