ch15 PDF

Modern Labor Economics, 10e (Ehrenberg/Smith)
Chapter 15 Inequality in Earnings

1) Data on the ratio of wages of full-time workers at the 90th percentile to those at the 10th
percentile show all the following EXCEPT
A) the ratio is generally higher among men than among women.
B) the ratio has climbed in almost all industrialized countries.
C) the ratios are higher in the United States and Canada than elsewhere.
D) the ratios in industrialized countries generally range between 3 and 5.
Answer: D
Question Status: Previous Edition
2) If a number of new workers enter the labor force and all of them find jobs at the mean level
of wages, then this will cause the variance of wages to
A) increase.
B) decrease.
C) remain unchanged.
D) either increase or decrease.
Answer: B
3) If all incomes were to fall by ten percent (due to deflation, for example) then the variance of
income will
A) increase.
B) decrease.
Answer: B
4) If all incomes were to double (due to inflation, for example) then the coefficient of variation
of income will
A) increase.
B) decrease.
Answer: C
5) The increase in wage inequality has been more rapid in the United States than in other
industrialized countries for all the following reasons EXCEPT
A) the supply of skilled workers has grown less quickly in the United States.
B) wage determination is more decentralized in the United States.
C) unskilled workers are retrained more quickly in the United States.
D) unemployment rates among unskilled workers have risen more rapidly in other
countries.
Answer: C
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6) The earnings and employment of those with more human capital have both increased
dramatically since 1980. This suggests that their ________ curve capital had shifted ________.
A) demand, leftward
B) demand, rightward
C) supply, leftward
D) supply, rightward
Answer: B
7) The coefficient of variation of incomes of full-time workers is highest among

A) older workers.
B) younger workers.
C) middle-aged workers.
D) high school graduates.
Answer: A
8) Much of the recent growth in income inequality was caused by

A) increases in real earnings of high school graduates.
B) decreasing returns to experience.
C) increases in the number of part-time workers.
D) increasing returns to education.
Answer: D
9) Since 1980 the earnings of middle-aged college-educated males has ________ relative to
those of high-school-educated males; and the earnings of middle-aged college-educated
females has ________ relative to those of high-school-educated females.
A) increased; increased
B) increased; decreased
C) decreased; increased
D) decreased; decreased
Answer: A
10) Since 1980 the real wages of unskilled workers in most of Western Europe have ________
and this helps explain why their unemployment rates have ________.
A) fallen; fallen
B) not fallen; fallen
C) fallen; risen
D) not fallen; risen
Answer: D
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11) If supply shifts were the primary cause behind the increasing wage gap between highly-
educated and less-educated workers then
A) both supply curves must shift in the same direction.
B) the employment of less-educated workers would increase relative to the employment
of college-educated workers.
C) the employment of less-educated workers would decrease relative to the employment
of college-educated workers.
D) the relative employment of the two groups would not change.
Answer: B
12) Among male college graduates, returns to experience have ________ since 1980, tending to
A) increased; equalize earnings.
B) increased; increase earnings inequality.
C) decreased; equalize earnings.
D) decreased; increase earnings inequality.
Answer: C
13) Which of these wage trends has reduced the rate of increase in income inequality since 1980.
A) the trend in the wages of men versus the wages of women
B) the trend in the wages of high-school-educated workers versus the wages of college-
educated workers
C) the narrowing of earnings within narrowly defined human capital groups
D) high levels of immigration
Answer: A
14) Which of the following could NOT increase the earnings gap between highly-educated and
less-educated workers?
A) a faster increase in the demand for highly-educated workers than for less-educated
workers
B) a faster increase in the supply of highly-educated workers than of less-educated
workers
C) a decrease in the demand for less-educated workers
D) a decrease in the average strength of unions
Answer: B
15) If the wages of less-educated workers were reduced by supply shifts, then we would expect
to see
A) an increase in the employment level of these workers.
B) a decrease in the employment level of these workers.
C) no change in the employment level of these workers.
D) either an increase or a decrease in the employment level of these workers.
Answer: A
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16) Technological change
A) is the equivalent of a decrease in the price of capital.
B) is the equivalent of an increase in international trade.
C) will always decrease the demand for less-educated workers.
D) will always decrease the demand for well-educated workers.
Answer: A
Table 14.1 Incomes in Pololand
17) According to Table 14.1, in which period is the Gini coefficient lowest?
A) 1
B) 2
C) 3
D) 4
Answer: B
18) Changes in labor demand can result from changes in either product demand or the capital-
labor mix. During the 1980s,
A) changes in product demand were more influential due to changes in import-export
ratios.
B) changes in product demand were more influential due to changes in income levels.
C) changes in capital-labor mixes were more important.
D) changes in both areas were of roughly equal importance.
Answer: C
19) If technical change in the form of an increase in the use of capital increased the demand for
skilled labor, then capital and skilled labor must be
A) gross substitutes.
B) substitutes in production.
C) gross complements.
D) perfect complements.
Answer: C
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20) A decrease in the price of capital will cause the demand for unskilled labor to shift to the left
if capital and unskilled labor are
A) gross complements.
B) gross substitutes.
C) gross complements or gross substitutes.
D) complements in production.
Answer: B
21) Which of the following is not a major cause of the increase in the inequality since 1980?
A) increase returns to investments in higher education
B) increased earnings disparities within human-capital groups
C) the change in female relative to male earnings since 1980
D) increase in the price of high-tech goods
Answer: C
22) The greatest growth of earnings disparities within an occupation in the 1980s occurred
A) within the sales profession.
B) among government workers.
C) within the teaching profession.
D) among assembly line workers.
Answer: A
23) The Lorenz curve will ________ whenever the distribution of family income becomes less
equal.
A) move closer to the diagonal line
B) become straighter
C) move farther from the diagonal line
D) cross the previous Lorenz Curve
Answer: C
24) The Gini coefficient in a society where all families have equal incomes would be
A) 0.
B) 0.5.
C) 1.0.
D) 2.0.
Answer: A
25) According to the Gini coefficient, income EQUALITY in the United States during the 1980s
A) increased.
B) remained unchanged.
C) decreased.
D) increased, because the Gini coefficient increased.
Answer: C
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26) Which of the following will reduce inequality?
A) The rich and poor earn more, but the rich earn proportionately more.
B) The poor and rich earn less, but the earnings of the rich go down proportionately more.
C) The poor and the rich earn proportionately more.
D) The poor and rich earn less, but the earnings of the poor go down proportionately
more.
Answer: B
27) The area under a Lorenz curve is 0.30. What is its Gini coefficient?
A) 0.15
B) 0.20
C) 0.30
D) 0.40
Answer: D
28) The Gini coefficient is 0.20. What is the area under the Lorenz curve?
A) 0.10
B) 0.20
C) 0.30
D) 0.40
Answer: D
29) If the fraction of the people in the middle of the income distribution decreases by 20 percent
with half of these moving to the lower end and the other half to the upper end, then income
inequality will:
A) increase.
B) decrease.
C) be unaffected.
D) uncertain.
Answer: A
30) An economist in a foreign land observes that the earnings of college graduates have
increased relative to the earnings of high school graduates. Over the same period, the
relative number of college graduates has gone down. Which of the following explanations is
consistent with these two observations? The increase in earnings inequality between high
school and college graduates:
A) is due to technical change making college graduates more productive relative to high
school graduates.
B) is due an increase in the demand for college graduates relative to high school
graduates.
C) is due to the increase in cost of going to college.
D) is due to an increase in the returns to a college education.
Answer: C
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31) According to the text, the main reason for the increase in inequality since 1980 is
A) the policies favored by Ronald Reagan.
B) higher compensation of corporation bosses.
C) technical change favoring those with more human capital.
D) decreased international trade.
Answer: C
Question Status: New
32) An increase in inequality will always be accompanied by:

A) a reduction of earnings of those in the lowest percentiles.
B) an increase of earnings of those in the highest percentiles.
C) an increase in the dispersion of incomes.
D) all of the above.
Answer: C
33) Jeb and his brother John are in manufacturing jobs that pay the mean earnings in the United
States. They then become farmers and their usual earnings, while remaining the same on
average as the mean earings in the United States, vary from year to year. In one year, Jeb
earns $20,000 more than usual while John earns $20,000 less than usual. If this occurred for
many workers, then
A) inequality will increase.
B) inequality will decrease.
C) inequality will remain unchanged.
D) it is uncertain how inequality will change.
Answer: A
34) In nation X, inequality is measured with reported income and does not include welfare
benefits. Suppose welfare benefits are increased and those on welfare who continue to work
cut slightly back on their hours of work. Measured inequality will ________ and true
inequality will likely ________.
A) increase, increase
B) decrease, decrease
C) decrease, increase
D) increase, decrease
Answer: D
35) Assume the demand for high tech good is perfectly inelastic. If workers producing high tech
goods become more productive, then these workers employment will ________ and their
wages will ________.
A) fall, rise
B) fall, fall
C) rise, rise
D) rise, fall
Answer: B
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Modern Labor Economics, 10e (Ehrenberg/Smith)

Chapter 15 Inequality in Earnings

7) The coefficient of variation of incomes of full-time workers is highest among

8) Much of the recent growth in income inequality was caused by

Table 14.1 Incomes in Pololand

32) An increase in inequality will always be accompanied by:

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