The exam is Monday, March 17 at 2:00 pm (14:00) in the regular classroom. It will cover chapters 8, 9, 11, 12, 14, 15, and pp. 424, 442-465.

1. What is meant by compensating wage differentials? What functions do they serve? Give some examples of compensating differences in wages in the U.S.
2. Assuming preferences differ, how are compensating differences determined when jobs either have the characteristic (such as whether the job is on the night shift) or not? Describe both employer and employee considerations. How and why will they change? Will a competitive market eliminate these wage differences? Why or why not?
3. Suppose jobs vary in the amount of risk or some other feature that has varying levels. What determines the combinations of risk and wages offered in the market (offer curve)? When is this in equilibrium? Which workers will be employed in the high risk jobs? which in the low risk jobs?
4. What is the optimal level of occupational risk? Under what conditions will the market system achieve this optimum? What is the rationale for government efforts to reduce risk (job hazard)? How should government standards be set? Under what circumstances are such efforts beneficial to individuals? When do they make workers worse off?
5. What are some of the common fringe benefits? Since fringes and wages are both forms of compensation, why isn't the tradeoff always $1 more in fringes for $1 less in wages? Explain worker preferences with regard to wages and fringes. What determines the mix of fringe benefits and wages.
6. Why do compensating differences sometimes "go the wrong way?"
7. State the cost-minimizing rule for employers if workers differ in ability (productivity) in easily determined ways. What if there are costs to determining productivity?
8. Explain an individual's decision to invest in a college education using the cost/benefit approach or by comparing the present value of the two income streams. What are the costs of a college education? What are the benefits of it as an investment? Are there other benefits and costs? Be able to do this in words and equation form. When will an individual want to go to college? When not?
9. What is meant by the rate of return on a college education? How is it calculated? Explain the decision to invest using the rate of return approach. What is the equilibrium rate of return?
10. What are the characteristics of those likely to choose to attend college? Why would two people differ in the amount of education they acquire?
11. What factors would cause an increase in the number of people wanting to attend college?
12. How is the earnings differential between jobs that differ in educational requirements determined in the market? When will this wage differential rise? When will it fall? What has happened in the U.S. over time? Explain the labor market matching that occurs.
13. How and why has the rate of return on a college education changed in the U.S. over time? What happened in the 1990s?
14. Why might the social costs and benefits of investment in a college education be greater or less than the private costs and benefits? What governmental policy is appropriate if the social return is greater than the private? if the social return is less?
15. Explain how education can act as a signaling device. What evidence supports this view of education? What contradicts the view that education is merely a sorting device?
16. How and why do wages change with age? Sketch a typical age-earnings profile. What gives the profile its characteristic shape? How and why will they differ among individuals? How and why do worker's investments in human capital vary over the life cycle?
17. Emplyment contracts are usually implict. What does that mean? Why is it essential that they be self-enforcing? Describe several ways of making them so.
18. What are the advantages and disadvantages of paying workers piece rates (or other performance-related measure) instead of on a time basis? What are the advantages and disadvantages of group versus individual incentives? When will each be used?
19. Why might the level of wages affect efficiency? What effect would this have on the demand for labor?
20. How might employers structure pay over time to provide an incentive for increased effort? What are the advantages and disadvantages of delayed compensation contracts? Why would workers take these jobs?
21. What is meant by the internal labor market? Why are jobs filled in the internal and not the external labor market? How are wages determined in the internal labor market?
22. When will firms pay people on the basis of their relative productivity? What are the disadvantages of doing so? Are large pay differentials always beneficial? Explain why or why not.
23. State the various reasons why earnings increase with job tenure.
24. Describe the differences in earnings among the different races and sexes. Is all this due to discrimination? If not, why not? What part is? Why is this difficult to measure accurately? How and why have these differences changed over time?
25. Explain the model of employer discrimination (Becker's model). Explain how the size of the difference in wages is determined. Describe the degree of segregation that exists.
26. Explain why in a competitive market wage discrimination might be eliminated. Why isn't it? Why is it profitable for even a competitive employer to discriminate? What differences does it make if firms have market power?
27. Explain how and why employee discrimination affects wages and employment? Are workers segregated? Do the same for consumer discrimination.
28. What is meant by occupational segregation? Give some examples. How is it measured? How does it come about? What is the effect of occupational crowding on wages, income, efficiency?
29. What is meant by statistical discrimination? Explain how it affects wages and employment.
30. Once discrimination exists, it affects workers' choices so that they act in ways that perpetuate lower relative earnings. Explain with regard to race or sex differences.
31. How and why have wage differential by race and sex changed over time? Briefly describe federal prgrams to end discrimination. What effect have they had?
32. How can unions increase wages and benefits for their members?
33. What impact have unions had on a) wages for union members b) benefits for union members c) wages of non-union workers? How has the size of the union wage effect vary a) over the business cycle b) by union and job characteristics?
34. Summarize the various reasons why all workers don't receive the same wages? Which of these differences will be eliminated in the long-run? Why won't? Why won't they? Which is the most important source of wage differentials in the US?
35. How and why has wage inequality changed in recent years?
36. Review: Who is counted as unemployed and how is the unemployment rate calculated?
37. Distinguish between incidence and duration of unemployment. Explain how each is related to the unemployment rate, assuming a constant labor force. What are the sources of unemployment?
38. What is meant by frictional unemployment, structural unemployment, seasonal unemployment? How does each arise? Explain the forces that tend to prolong each type; the forces that tend to eliminate each.
39. Explain an individual's decision to accept a job offer or to continue to search. What is the asking wage? How is it determined? How is it used? How and why will it change? Use this theory to explain unemployment and to explain how and when wage rates adjust.
40. Explain the employer's search decisions. What is meant by hiring costs? Explain the firm's decision to invest in hiring costs (be sure to identify all benefits and costs). Under what circumstances will hiring costs be high? Use this to explain the process of wage adjustment. Why are wages slow to decrease when demand falls?
41. Will job search eliminate all wage differentials? Explain.
42. What is meant by demand deficient (cyclical) unemployment? How does it arise? Why don't firms cut wages when demand falls? Why don't workers accept lower wages to avoid unemployment?
43. What is meant by the natural rate of unemployment (or steady-state rate of unemployment or NAIRU)? How and why has it changed in the last 25 years? What is expected in the future?
44. Compare the unemployment rate for different groups in the labor market. Why are unemployment rates higher for some than others?
45. What government programs are effective for reducing each type of unemployment? What is the purpose of unemployment compensation? How and why has it affected the unemployment rate?