Question 1

If designed correctly, tournaments

Accepted Answer

A) discourage competition. 
B) reward players according to their ranked productivity. 
C) elicit equal effort from all workers. 
D) always reward a single winner. 
E) reduce the applicant pool to just those workers with the best degrees. 
A) discourage competition. 
B) reward players according to their ranked productivity. 
C) elicit equal effort from all workers. 
D) always reward a single winner. 
E) reduce the applicant pool to just those workers with the best degrees. B

Question 2

Suppose a firm overpays its workers at the start of the job, and then the firm slowly lowers wages over time until eventually the firm pays the workers considerably less than the worker's marginal product of labor. What prevents this "reverse of a delayed-compensation scheme" from being implemented?

Accepted Answer

A) Workers prefer wages to increase over time. 
B) The firm would fire the worker as soon as the worker's value of marginal product exceeded the worker's wage. 
C) Workers would leave the job as soon as the firm tries to pay the worker less than his or her value of marginal product. 
D) The firm would need to enforce a mandatory retirement age which is illegal in the United States. 
E) The workers would never have an incentive to invest in general training. 
A) Workers prefer wages to increase over time. 
B) The firm would fire the worker as soon as the worker's value of marginal product exceeded the worker's wage. 
C) Workers would leave the job as soon as the firm tries to pay the worker less than his or her value of marginal product. 
D) The firm would need to enforce a mandatory retirement age which is illegal in the United States. 
E) The workers would never have an incentive to invest in general training. C

Question 3

The idea of linking public school teacher salaries to student outcomes is basically an attempt to impose a ____________ compensation scheme on teachers.

Accepted Answer

A) time-rate 
B) piece-rate 
C) tournament 
D) profit-sharing 
E) work-for-pay 
A) time-rate 
B) piece-rate 
C) tournament 
D) profit-sharing 
E) work-for-pay B

Question 4

What happens to the piece rate if there is a ratchet effect?

Accepted Answer

A) The piece rate decreases over time. 
B) The piece rate increases over time. 
C) The piece rate is replaced with a time rate. 
D) The piece rate is replaced with a salary contract. 
E) The piece rate is only paid to the least productive workers. 
A) The piece rate decreases over time. 
B) The piece rate increases over time. 
C) The piece rate is replaced with a time rate. 
D) The piece rate is replaced with a salary contract. 
E) The piece rate is only paid to the least productive workers.

Question 5

A firm owner wants a manager to make difficult personnel decisions when necessary (which requires firing a worker every now and then) in order to maximize the firm's profits. The manager, however, prefers to not fire anyone. The worker also prefers not to be fired. In this example, who is the principal and who is the agent?

Accepted Answer

A) The firm owner is the principal. The manager is the agent. 
B) The firm owner is the principal. The should-be-fired worker is the agent. 
C) The manager is the principal. The firm owner is the agent. 
D) The should-be-fired worker is the principal. The manager is the agent. 
E) The should-not-be-fired worker is the principal. The firm owner is the agent. 
A) The firm owner is the principal. The manager is the agent. 
B) The firm owner is the principal. The should-be-fired worker is the agent. 
C) The manager is the principal. The firm owner is the agent. 
D) The should-be-fired worker is the principal. The manager is the agent. 
E) The should-not-be-fired worker is the principal. The firm owner is the agent.

Question 6

Principal-agent problems arise when

Accepted Answer

A) the principal negotiates contracts on behalf of the agent. 
B) the agent negotiates contracts on behalf of the principal. 
C) the agent's objectives are different from the principal's objectives. 
D) firm owners (the principals) pay employee wages (the agents) based on race. 
E) workers (the principals) work harder when the firm owners (the agents) increase wages. 
A) the principal negotiates contracts on behalf of the agent. 
B) the agent negotiates contracts on behalf of the principal. 
C) the agent's objectives are different from the principal's objectives. 
D) firm owners (the principals) pay employee wages (the agents) based on race. 
E) workers (the principals) work harder when the firm owners (the agents) increase wages.

Question 7

One argument against using a profit-sharing scheme is the potential for free-riding. In this situation, free-riding refers to

Accepted Answer

A) one firm using the same contract specifications as another firm. 
B) a worker not providing effort because his contribution to profit is very small. 
C) a worker not providing effort because he doesn't want his co-workers' wages to increase. 
D) the firm not honestly reporting its profits. 
E) profits being insensitive to worker effort because all increases in profit are returned to the workers due to the profit-sharing scheme. 
A) one firm using the same contract specifications as another firm. 
B) a worker not providing effort because his contribution to profit is very small. 
C) a worker not providing effort because he doesn't want his co-workers' wages to increase. 
D) the firm not honestly reporting its profits. 
E) profits being insensitive to worker effort because all increases in profit are returned to the workers due to the profit-sharing scheme.

Question 8

An efficiency wage is defined as

Accepted Answer

A) a wage above the competitive wage that elicits greater effort on the part of the workers. 
B) a wage below the competitive wage that elicits greater effort on the part of the workers. 
C) any wage scheme that is accepted by the union. 
D) any wage scheme that pays different workers different wages. 
E) any wage scheme that pays all workers the same wage. 
A) a wage above the competitive wage that elicits greater effort on the part of the workers. 
B) a wage below the competitive wage that elicits greater effort on the part of the workers. 
C) any wage scheme that is accepted by the union. 
D) any wage scheme that pays different workers different wages. 
E) any wage scheme that pays all workers the same wage.

Question 9

To pay piece rates in order to elicit effort, it must be the case that

Accepted Answer

A) the firm can monitor individual worker output. 
B) workers refuse to accept a time rate. 
C) firms cannot monitor individual worker effort. 
D) the production process relies on group work. 
E) the firm does not want to maximize profits. 
A) the firm can monitor individual worker output. 
B) workers refuse to accept a time rate. 
C) firms cannot monitor individual worker effort. 
D) the production process relies on group work. 
E) the firm does not want to maximize profits.

Question 10

Which one of the following statements about piece rate compensation schemes is false?

Accepted Answer

A) Piece rate systems attract more able workers. 
B) Piece rate systems elicit high levels of effort. 
C) Piece rate systems are preferred by discriminatory firms. 
D) Piece rate systems discourage nepotism. 
E) Piece rate systems tie pay to performance. 
A) Piece rate systems attract more able workers. 
B) Piece rate systems elicit high levels of effort. 
C) Piece rate systems are preferred by discriminatory firms. 
D) Piece rate systems discourage nepotism. 
E) Piece rate systems tie pay to performance.

Question 11

One piece of evidence in favor of the efficiency wage model is that some sectors of the economy pay relatively high wages, whereas other sectors pay lower wages. This supports the efficiency wage model as it seems to provide evidence of what?

Accepted Answer

A) The existence of dual labor markets. 
B) There are compensating differentials being paid depending on the type of work being done. 
C) Unemployment is constant across sectors. 
D) High-wage firms take advantage of delayed-compensation contracts. 
E) Workers voluntarily provide bonds in case they are caught shirking. 
A) The existence of dual labor markets. 
B) There are compensating differentials being paid depending on the type of work being done. 
C) Unemployment is constant across sectors. 
D) High-wage firms take advantage of delayed-compensation contracts. 
E) Workers voluntarily provide bonds in case they are caught shirking.

Question 12

Which is not true regarding a delayed-compensation contract?

Accepted Answer

A) A delayed-compensation contract discourages workers from shirking. 
B) A delayed-compensation contract decreases employee turnover within the firm. 
C) An effective delayed-compensation contract requires a mandatory retirement age. 
D) A delayed-compensation contract necessarily costs more in labor costs than a time-rate system. 
E) A delayed-compensation contract is associated with an upward-sloping age-earnings profile. 
A) A delayed-compensation contract discourages workers from shirking. 
B) A delayed-compensation contract decreases employee turnover within the firm. 
C) An effective delayed-compensation contract requires a mandatory retirement age. 
D) A delayed-compensation contract necessarily costs more in labor costs than a time-rate system. 
E) A delayed-compensation contract is associated with an upward-sloping age-earnings profile.

Question 13

A firm that finds it extremely expensive to monitor the output of each worker will likely pay its workers

Accepted Answer

A) with piece rates. 
B) with time rates. 
C) with incentive pay. 
D) according to how much each worker produces. 
E) on commission. 
A) with piece rates. 
B) with time rates. 
C) with incentive pay. 
D) according to how much each worker produces. 
E) on commission.

Question 14

Empirically, the relationship between CEO performance (measured in terms of share price) and CEO compensation is

Accepted Answer

A) large and positive. 
B) small and positive. 
C) nonexistent. 
D) small and negative. 
E) large and negative. 
A) large and positive. 
B) small and positive. 
C) nonexistent. 
D) small and negative. 
E) large and negative.

Question 15

Piece rates typically

Accepted Answer

A) encourage greater effort from workers. 
B) are more common than time rates. 
C) are associated with the worker incurring less risk concerning one's income. 
D) are more common among higher paying jobs. 
E) do not reward skill. 
A) encourage greater effort from workers. 
B) are more common than time rates. 
C) are associated with the worker incurring less risk concerning one's income. 
D) are more common among higher paying jobs. 
E) do not reward skill.

Question 16

A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As a result, firm profits increase and there is a pool of involuntarily unemployed workers. In this model, if the firm's cost of monitoring effort falls,

Accepted Answer

A) the efficiency wage will fall. 
B) the number of shirking workers will fall. 
C) firm profits will fall. 
D) the firm will increase its number of factory managers. 
E) the pool of involuntarily unemployed workers will increase. 
A) the efficiency wage will fall. 
B) the number of shirking workers will fall. 
C) firm profits will fall. 
D) the firm will increase its number of factory managers. 
E) the pool of involuntarily unemployed workers will increase.

Question 17

A piece rate compensation system

Accepted Answer

A) underemphasizes the quantity of output produced. 
B) attracts and benefits the most able workers. 
C) inherently hurts minorities. 
D) decreases a firm's productivity. 
E) has no disadvantages. 
A) underemphasizes the quantity of output produced. 
B) attracts and benefits the most able workers. 
C) inherently hurts minorities. 
D) decreases a firm's productivity. 
E) has no disadvantages.

Question 18

Which of the following is not likely to help a firm motivate its workers to put forth more effort?

Accepted Answer

A) Providing a free or subsidized company gym and/or cafeteria. 
B) Installing monitoring equipment. 
C) Providing competitive year-end bonuses. 
D) Implementing a profit-sharing scheme. 
E) All of these are likely to motivate workers to put forth more effort. 
A) Providing a free or subsidized company gym and/or cafeteria. 
B) Installing monitoring equipment. 
C) Providing competitive year-end bonuses. 
D) Implementing a profit-sharing scheme. 
E) All of these are likely to motivate workers to put forth more effort.

Question 19

The optimal efficiency wage requires

Accepted Answer

A) firms to pay the competitive wage. 
B) firms to pay any wage above the competitive wage. 
C) firms to pay the unique wage above the competitive wage such that the elasticity of output with respect to wages equals one. 
D) firms to pay fringe benefits. 
E) the total product curve to be downward sloping. 
A) firms to pay the competitive wage. 
B) firms to pay any wage above the competitive wage. 
C) firms to pay the unique wage above the competitive wage such that the elasticity of output with respect to wages equals one. 
D) firms to pay fringe benefits. 
E) the total product curve to be downward sloping.

Question 20

Which of the following statements is false?

Accepted Answer

A) Profit sharing redistributes profits back to the workers. 
B) Bonuses are frequently linked to performance. 
C) Bonuses are paid in addition to base salary. 
D) Free-riding can result from a compensation scheme that gives competitive individual bonuses. 
E) Free-riding can result from profit sharing. 
A) Profit sharing redistributes profits back to the workers. 
B) Bonuses are frequently linked to performance. 
C) Bonuses are paid in addition to base salary. 
D) Free-riding can result from a compensation scheme that gives competitive individual bonuses. 
E) Free-riding can result from profit sharing.

If designed correctly, tournaments

Suppose a firm overpays its workers at the start of the job, and then the firm slowly lowers wages over time until eventually the firm pays the workers considerably less than the worker's marginal product of labor. What prevents this "reverse of a delayed-compensation scheme" from being implemented?

The idea of linking public school teacher salaries to student outcomes is basically an attempt to impose a ____________ compensation scheme on teachers.

What happens to the piece rate if there is a ratchet effect?

Principal-agent problems arise when

One argument against using a profit-sharing scheme is the potential for free-riding. In this situation, free-riding refers to

An efficiency wage is defined as

To pay piece rates in order to elicit effort, it must be the case that

Which one of the following statements about piece rate compensation schemes is false?

One piece of evidence in favor of the efficiency wage model is that some sectors of the economy pay relatively high wages, whereas other sectors pay lower wages. This supports the efficiency wage model as it seems to provide evidence of what?

Which is not true regarding a delayed-compensation contract?

A firm that finds it extremely expensive to monitor the output of each worker will likely pay its workers

Empirically, the relationship between CEO performance (measured in terms of share price) and CEO compensation is

Piece rates typically

A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As a result, firm profits increase and there is a pool of involuntarily unemployed workers. In this model, if the firm's cost of monitoring effort falls,

A piece rate compensation system

Which of the following is not likely to help a firm motivate its workers to put forth more effort?

The optimal efficiency wage requires

Which of the following statements is false?

Introduction to Labor Economics

Labor Supply

Labor Demand

Labor Market Equilibrium

Compensating Wage Differentials

Human Capital

The Wage Structure

Labor Mobility

Labor Market Discrimination

Labor Unions

Unemployment

Filters

Exam 11: Incentive Pay

If designed correctly, tournaments

The idea of linking public school teacher salaries to student outcomes is basically an attempt to impose a ____________ compensation scheme on teachers.

What happens to the piece rate if there is a ratchet effect?

Principal-agent problems arise when

One argument against using a profit-sharing scheme is the potential for free-riding. In this situation, free-riding refers to

An efficiency wage is defined as

To pay piece rates in order to elicit effort, it must be the case that

Which one of the following statements about piece rate compensation schemes is false?

One piece of evidence in favor of the efficiency wage model is that some sectors of the economy pay relatively high wages, whereas other sectors pay lower wages. This supports the efficiency wage model as it seems to provide evidence of what?

Which is not true regarding a delayed-compensation contract?

A firm that finds it extremely expensive to monitor the output of each worker will likely pay its workers

Empirically, the relationship between CEO performance (measured in terms of share price) and CEO compensation is

Piece rates typically

A standard efficiency wage model pays workers higher wages in order to increase worker efficiency. As a result, firm profits increase and there is a pool of involuntarily unemployed workers. In this model, if the firm's cost of monitoring effort falls,

A piece rate compensation system

Which of the following is not likely to help a firm motivate its workers to put forth more effort?

The optimal efficiency wage requires

Which of the following statements is false?

Introduction to Labor Economics

Labor Supply

Labor Demand

Labor Market Equilibrium

Compensating Wage Differentials

Human Capital

The Wage Structure

Labor Mobility

Labor Market Discrimination

Labor Unions

Unemployment

Filters