Labor Economics and Human Capital Flashcards

Dual labor market theory divides the economy's labor market into:

Answer: A primary segment with stable, high-wage jobs and a secondary segment with unstable, low-wage jobs

Doeringer and Piore's dual labor market theory distinguishes a primary market (stable jobs, internal promotion ladders, high wages) from a secondary market (dead-end, low-wage, high-turnover jobs).

Job search theory, as developed by Stigler and Mortensen, predicts that unemployed workers will:

Answer: Set a reservation wage and continue searching until they receive an offer meeting that threshold

Search theory models workers as rational agents who set a reservation wage and sample from the wage offer distribution, balancing search costs against the expected benefit of a better offer.

The Beveridge curve illustrates the relationship between:

Answer: The unemployment rate and the job vacancy rate across the business cycle

The Beveridge curve plots vacancies against unemployment; an outward shift signals reduced matching efficiency or increased structural mismatch in the labor market.

Implicit contract theory in labor economics explains wage rigidity by arguing that:

Answer: Risk-averse workers accept stable wages as implicit insurance from employers who absorb income variation

Azariadis and Baily showed that firms act as insurers for risk-averse workers, offering stable wages in exchange for a lower average wage than fully flexible contracts would yield.

In labor economics, 'labor hoarding' refers to the practice whereby:

Answer: Firms retain excess workers during economic downturns to avoid dismissal and rehiring costs

Labor hoarding occurs when the fixed costs of layoffs, severance, and future rehiring/retraining exceed the short-run wage savings from reducing headcount.

A leftward shift in the labor supply curve in a competitive market most likely indicates:

Answer: A decrease in workforce participation due to factors such as an aging population or higher non-labor income

A leftward labor supply shift means fewer workers are willing to work at any given wage, driven by demographic aging, early retirement, rising transfer income, or rising non-market opportunity costs.

The concept of 'statistical discrimination' in labor markets refers to:

Answer: Employers using observable group characteristics as proxies for unobservable individual productivity, leading to group-based wage differences

Statistical discrimination (Arrow, Phelps) occurs when employers, lacking full information on individual workers, use group averages as signals, perpetuating wage gaps even without taste-based prejudice.