Labor Economics and Human Capital Flashcards

Structural unemployment occurs when:

Answer: There is a persistent mismatch between workers' skills and the requirements of available jobs

Structural unemployment results from long-term changes in the economy — such as technological shifts or industry decline — that create skill or geographic mismatches between workers and openings.

The 'discouraged worker effect' describes individuals who:

Answer: Stop actively searching for work because they believe no suitable jobs are available

Discouraged workers have withdrawn from active job search and are excluded from official unemployment statistics, causing measured unemployment to understate true labor market weakness.

The insider-outsider theory of wage determination proposes that:

Answer: Currently employed workers (insiders) use bargaining power to maintain above-market wages at the expense of job seekers (outsiders)

The insider-outsider model shows that insiders exploit their position to keep wages high, creating entry barriers for outsiders and explaining persistent unemployment.

Regarding on-the-job training, human capital theory predicts that:

Answer: General training costs are borne by workers while firm-specific training costs are shared between workers and employers

Because general skills benefit any employer, workers pay via lower wages during training; firm-specific skills benefit only the current employer, so costs and returns are shared.

Skill-biased technological change (SBTC) is primarily associated with:

Answer: Rising wage inequality as technology increases relative demand for high-skilled labor

SBTC theory holds that new technologies complement high-skilled workers and substitute for low-skilled workers, widening the wage distribution and increasing earnings inequality.

Frictional unemployment is best described as:

Answer: Short-term, voluntary unemployment arising from the normal job search and matching process

Frictional unemployment is temporary and reflects the time required for workers and firms to find suitable matches, even in a healthy labor market.

A binding minimum wage set above the competitive equilibrium wage will, in a standard competitive labor market, most likely result in:

Answer: A surplus of labor (unemployment) as quantity of labor supplied exceeds quantity demanded

A price floor above equilibrium creates excess supply — in the labor market, more workers want jobs at the minimum wage than employers are willing to hire, producing unemployment.