Labor Economics and Human Capital Flashcards
7 cards from real CEA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Labor Economics and Human Capital flashcards as text
According to human capital theory, what is the primary reason workers with more education tend to earn higher wages?
Answer: They have acquired skills and knowledge that increase their productivity
Human capital theory, developed by Becker and Mincer, holds that education raises earnings by increasing worker productivity, not merely through signaling or protection.
Efficiency wage theory suggests that firms pay workers above the market-clearing wage primarily because:
Answer: Higher wages reduce shirking, lower turnover, and increase worker productivity
Efficiency wage theory holds that above-equilibrium wages motivate workers to avoid dismissal, reduce costly turnover, and attract higher-quality applicants.
A monopsony in the labor market is best characterized by:
Answer: A single dominant employer with the ability to set wages below the competitive level
A monopsonist faces an upward-sloping labor supply curve, allowing it to set wages below the competitive equilibrium and employ fewer workers than the socially optimal level.
The Mincer earnings equation estimates wages primarily as a function of:
Answer: Years of schooling, years of work experience, and experience squared
Jacob Mincer's foundational equation regresses log wages on years of schooling, experience, and experience-squared to capture the concave earnings-experience relationship.
Compensating wage differentials arise when:
Answer: Workers receive higher wages to offset undesirable job characteristics such as danger or instability
Compensating differentials equalize total job attractiveness; workers in hazardous, unpleasant, or unstable jobs command wage premiums that offset the non-monetary costs.
The labor force participation rate (LFPR) is defined as:
Answer: The ratio of the civilian labor force to the civilian non-institutional working-age population
LFPR equals the labor force (employed plus unemployed actively seeking work) divided by the civilian non-institutional population, expressed as a percentage.
The 'natural rate of unemployment' refers to:
Answer: The unemployment rate consistent with stable inflation, comprising frictional and structural unemployment
The natural rate (NAIRU) is the rate at which inflation neither accelerates nor decelerates, composed of unavoidable frictional and structural unemployment.