Question 1

If a firm can offer fringe benefits worth more than one dollar for a one dollar reduction in wages:

Accepted Answer

A)  the wage-fringe isoprofit line will be upward-sloping
B)  the wage-fringe isoprofit line will have a slope less than one in absolute value
C)  the marginal rate of substitution between wages and fringe benefits will be greater than one at the wage-fringe optimum
D)  as a proportion of total compensation,fringe benefits will likely exceed one halfE) B) and C)
F) All of the above

Question 2

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-If the isoprofit line shifts from line 1 to line 2,then:

Accepted Answer

A)  to maintain profit level 2,the firm must provide more fringe benefits and reduce wages
B)  to maintain profit level 2,the firm must reduce fringe benefits and raise wages
C)  as the firm moves from line 1 to line 2,it could provide more fringe benefits while paying the same wage rate
D)  providing more fringe benefits would reduce the firm's profitE) A) and C)
F) C) and D)

Question 3

In their study of "job lock," Buchmueller and Valetta conclude:

Accepted Answer

A)  there is no empirical relationship between health insurance coverage and job lock
B)  health insurance coverage reduces job mobility for men but not for women
C)  job lock is greatest among those who use health care the least
D)  "continuation of coverage" mandates increase job mobility by approximately 10%E) A) and D)
F) A) and B)

Question 4

A firm might choose to pay its employees a wage higher than that which would clear the market because:

Accepted Answer

A)  the higher wage raises the opportunity cost of shirking
B)  the higher wage may shift the labor demand curve to the left
C)  the firm will have higher turnover,allowing new workers to invigorate the work place
D)  the higher wage solves the free-rider problemE) B) and C)
F) B) and D)

Question 5

Team bonuses:

Accepted Answer

A)  solve the free-rider problem associated with individual bonuses
B)  create a principal-agent problem by channeling effort toward team performance at the expense of individual performance
C)  typically comprise a large percentage of the total compensation of middle managers,but almost none of the total pay of top executives
D)  work best when targeted at relatively small groups of employeesE) None of the above
F) A) and B)

Question 6

A simple income-leisure model might predict that salaried workers would work fewer hours than hourly workers.In fact the opposite seems to be true,in part because:

Accepted Answer

A)  raises and promotions are "won" on the basis of productivity rankings
B)  firms typically offer raises and promotions solely on the basis of seniority
C)  of the principle-agent problem
D)  salaried work is an example of a deferred compensation schemeE) A) and B)
F) A) and C)

Question 7

refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits.

-Suppose some development rotates the isoprofit line outward,to line 2.If history is a guide,we would expect this worker's new wage-fringe optimum to be at point:

Accepted Answer

A)  D
B)  E
C)  F.
D)  GE) B) and C)
F) A) and D)

Question 8

One implication of efficiency wage models is that:

Accepted Answer

A)  firms pay wages below the market-clearing rate
B)  an excess supply of labor may be created
C)  an excess demand for labor may be created
D)  CEO contracts will contain golden parachute clausesE) A) and B)
F) None of the above

Question 9

Raises and promotions may be viewed as a form of:

Accepted Answer

A)  profit-sharing
B)  commissions and royalties
C)  piece rate pay
D)  tournament payE) All of the above
F) A) and B)

Question 10

Which one of the following is not typically offered as an explanation for efficiency wages?

Accepted Answer

A)  An employer will not pay a wage that exceeds the market rate
B)  A higher wage may reduce turnover
C)  A higher wage may allow lower income workers to afford better nutrition that increases their stamina
D)  The higher wage may be perceived by workers as raising the opportunity cost of shirkingE) A) and B)
F) None of the above

Question 11

The slope of a wage-fringe indifference curve reflects:

Accepted Answer

A)  the overall utility level of a person
B)  a worker's willingness to give up an extra dollar of wages in exchange for an extra dollar of fringe benefits
C)  the firm's cost of paying an extra dollar of compensation as wages rather than fringe benefits
D)  an increasing marginal rate of substitution of fringe benefits for cashE) None of the above
F) A) and B)

Question 12

The effectiveness of profit-sharing plans may be diminished because:

Accepted Answer

A)  potential free-rider problems render such plans ineffective in all but the largest firms
B)  profit-sharing is a type of deferred payment scheme
C)  the plans are tied to group performance,so the link between profit-sharing and worker productivity is not always clear-cut
D)  there is no means by which greater work effort can be translated into greater compensation for a workerE) C) and D)
F) A) and D)

Question 13

As a percentage of benefits,the largest share goes to:

Accepted Answer

A)  retirement and savings
B)  insurance
C)  paid leave
D)  legally required benefitsE) A) and B)
F) A) and C)

Question 14

Fringe benefits will tend to be a greater proportion of total compensation,the:

Accepted Answer

A)  more income elastic are fringe benefits
B)  more they increase worker turnover
C)  lower the employer's share of the Social Security tax
D)  less there are economies of scale in purchasing fringe benefitsE) B) and D)
F) A) and B)

Question 15

In 1914 Ford Motor Company doubled the wage it paid its employees,resulting in:

Accepted Answer

A)  unusually high quit rates and absenteeism
B)  no change in the number of job applicants,because the offer only applied to persons employed at Ford more than six months
C)  lower quit rates and less absenteeism but no change in worker productivity
D)  an increase in worker productivity of more than 50%E) C) and D)
F) None of the above

Question 16

The employer's share of the Social Security and Medicare components of the payroll tax has increased,from 6.13% in 1980 to its current rate of 7.65%.Because employers pay no payroll tax on many fringe benefits,this change in tax rates has effectively:

Accepted Answer

A)  reduced the "price" of fringe benefits,increasing the slope of the wage-fringe isoprofit line
B)  increased the "price" of fringe benefits,increasing the slope of the wage-fringe isoprofit line
C)  reduced the "price" of fringe benefits,reducing the slope of the wage-fringe isoprofit line
D)  increased the "price" of fringe benefits,reducing the slope of the wage-fringe isoprofit lineE) C) and D)
F) None of the above

Question 17

The proportion of total compensation paid out as fringe benefits tends to be larger in:

Accepted Answer

A)  high-paid industries compared to low-paid industries
B)  service industries compared to manufacturing industries
C)  white-collar occupations compared to blue-collar occupations
D)  retail trade compared to transportation and public utilitiesE) A) and D)
F) B) and C)

Question 18

Which of the following best exemplifies a piece-rate compensation scheme?

Accepted Answer

A)  Jose's pay is proportional to the number of wiring harnesses he assembles each day
B)  Carla's pay is proportional to the value of her sales at the dress shop each month
C)  Stan's pay is proportional to the number of his textbooks sold each year
D)  Louise's pay is proportional to the number of hours she works each monthE) B) and C)
F) C) and D)

Question 19

Labor market efficiency requires that each worker be allocated to:

Accepted Answer

A)  the job offering the highest wage available
B)  the job offering the best fringe benefits available
C)  his or her optimal job
D)  his or her optimal job,and that each firm implements its optimal compensation packageE) A) and B)
F) B) and D)

Question 20

Fringe benefits currently account for approximately what percentage of total compensation?

Accepted Answer

A)  5% - 10%
B)  15% - 20%
C)  25% - 30%
D)  35% - 40%E) B) and D)
F) All of the above

Exam 7: Alternative Pay Schemes and Labor Efficiency

Which one of the following is not typically offered as an explanation for efficiency wages?

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A firm might choose to pay its employees a wage higher than that which would clear the market because:

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One implication of efficiency wage models is that:

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In their study of "job lock," Buchmueller and Valetta conclude:

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Raises and promotions may be viewed as a form of:

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The employer's share of the Social Security and Medicare components of the payroll tax has increased,from 6.13% in 1980 to its current rate of 7.65%.Because employers pay no payroll tax on many fringe benefits,this change in tax rates has effectively:

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The proportion of total compensation paid out as fringe benefits tends to be larger in:

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Labor market efficiency requires that each worker be allocated to:

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The effectiveness of profit-sharing plans may be diminished because:

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Team bonuses:

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A simple income-leisure model might predict that salaried workers would work fewer hours than hourly workers.In fact the opposite seems to be true,in part because:

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As a percentage of benefits,the largest share goes to:

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refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits. -Suppose some development rotates the isoprofit line outward,to line 2.If history is a guide,we would expect this worker's new wage-fringe optimum to be at point:

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Fringe benefits currently account for approximately what percentage of total compensation?

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Fringe benefits will tend to be a greater proportion of total compensation,the:

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Which of the following best exemplifies a piece-rate compensation scheme?

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In 1914 Ford Motor Company doubled the wage it paid its employees,resulting in:

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If a firm can offer fringe benefits worth more than one dollar for a one dollar reduction in wages:

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The slope of a wage-fringe indifference curve reflects:

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refer to the diagram below. All points along the ray 0P reflect a constant proportion of wages to fringe benefits. -If the isoprofit line shifts from line 1 to line 2,then:

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