Question 1

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. C

Question 2

What prevents a firm from offering a delayed-compensation scheme to its employees and then firing each worker when the worker's value of marginal product equals his or her wage?

Accepted Answer

A) Firms that offer delayed-compensation schemes are legally barred from firing workers. 
B) Profits would increase by allowing the worker to continue work at a lower wage. 
C) The worker will have already retired by the time the worker's value of marginal product equals his or her wage. 
D) The firm would lose the trust of the workers, and new workers would not accept the payment scheme. 
E) Profits are insensitive to when the worker quits his job. 
A) Firms that offer delayed-compensation schemes are legally barred from firing workers. 
B) Profits would increase by allowing the worker to continue work at a lower wage. 
C) The worker will have already retired by the time the worker's value of marginal product equals his or her wage. 
D) The firm would lose the trust of the workers, and new workers would not accept the payment scheme. 
E) Profits are insensitive to when the worker quits his job. D

Question 3

One disadvantage of using a tournament is that

Accepted Answer

A) no one will apply for tournament-style jobs. 
B) tournaments are more expensive than time rates or piece rates. 
C) workers who view themselves as losing the tournament will quit providing effort. 
D) the winners of tournaments are typically over-paid. 
E) tournaments are not able to identify the most productive workers. 
A) no one will apply for tournament-style jobs. 
B) tournaments are more expensive than time rates or piece rates. 
C) workers who view themselves as losing the tournament will quit providing effort. 
D) the winners of tournaments are typically over-paid. 
E) tournaments are not able to identify the most productive workers. C

Question 4

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.

Question 5

Incentive pay schemes generally refer to

Accepted Answer

A) firms paying as low wages as possible. 
B) college-educated workers being paid more than non college-educated workers. 
C) workers retiring later in life. 
D) any pay scheme in which all workers are paid equally according to tenure with the firm. 
E) paying workers according to production or effort. 
A) firms paying as low wages as possible. 
B) college-educated workers being paid more than non college-educated workers. 
C) workers retiring later in life. 
D) any pay scheme in which all workers are paid equally according to tenure with the firm. 
E) paying workers according to production or effort.

Question 6

The bonding critique criticizes the model of efficiency wages because

Accepted Answer

A) profit-maximizing firms should never be willing to pay more than the competitive wage. 
B) workers should be willing to give the firm collateral that the firm would keep if the firm ever caught the worker shirking, and in exchange the worker would be willing to work for a wage less than the efficiency wage. 
C) firms cannot issue bonds to pay for labor costs. 
D) workers do not know how well the firm can monitor worker effort. 
E) worker effort is unrelated to wages. 
A) profit-maximizing firms should never be willing to pay more than the competitive wage. 
B) workers should be willing to give the firm collateral that the firm would keep if the firm ever caught the worker shirking, and in exchange the worker would be willing to work for a wage less than the efficiency wage. 
C) firms cannot issue bonds to pay for labor costs. 
D) workers do not know how well the firm can monitor worker effort. 
E) worker effort is unrelated to wages.

Question 7

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.

Question 8

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 9

Spot labor markets are best described as

Accepted Answer

A) firms post a wage and workers decide how many hours of work to sell at that wage. 
B) workers post a wage and firms sign long-term contracts specifying how many hours of work to purchase at that wage. 
C) a worker decides how many hours of work to supply in each time period given expectations concerning his or her age-wage profile. 
D) unions and firms negotiate wage contracts. 
E) workers retire when the value of their marginal product starts to fall. 
A) firms post a wage and workers decide how many hours of work to sell at that wage. 
B) workers post a wage and firms sign long-term contracts specifying how many hours of work to purchase at that wage. 
C) a worker decides how many hours of work to supply in each time period given expectations concerning his or her age-wage profile. 
D) unions and firms negotiate wage contracts. 
E) workers retire when the value of their marginal product starts to fall.

Question 10

Which one of the following statements best describes profit sharing?

Accepted Answer

A) Profit sharing is an equal division of all revenues among workers. 
B) Profit sharing ties pay to the performance of individuals. 
C) Profit sharing is a program that donates profits to the poor. 
D) Profit sharing provides a system by which workers receive a share of the firm's profits. 
E) Profit sharing discourages free-riding among workers. 
A) Profit sharing is an equal division of all revenues among workers. 
B) Profit sharing ties pay to the performance of individuals. 
C) Profit sharing is a program that donates profits to the poor. 
D) Profit sharing provides a system by which workers receive a share of the firm's profits. 
E) Profit sharing discourages free-riding among workers.

Question 11

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 makes workers inherently more productive. 
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 makes workers inherently more productive. 
E) A delayed-compensation contract is associated with an upward-sloping age-earnings profile.

Question 12

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 13

Which of the following is typically not a possible disadvantage of a tournament?

Accepted Answer

A) Competitors have little incentive to help one another (and they may even sabotage each other's work). 
B) Workers rarely understand all of the rules to a tournament. 
C) A large prize can encourage workers to provide effort until the very end of the tournament, even if the worker has a small chance of winning. 
D) Workers may collude to share the prize in order to provide lower levels of effort. 
E) The outcome of a tournament may appear to be random. 
A) Competitors have little incentive to help one another (and they may even sabotage each other's work). 
B) Workers rarely understand all of the rules to a tournament. 
C) A large prize can encourage workers to provide effort until the very end of the tournament, even if the worker has a small chance of winning. 
D) Workers may collude to share the prize in order to provide lower levels of effort. 
E) The outcome of a tournament may appear to be random.

Question 14

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.This equilibrium comes about in part because

Accepted Answer

A) the firm pays workers according to a tournament. 
B) workers are less likely to shirk when there is a pool of unemployed workers who are willing to take their job. 
C) the firm agrees to not replace labor with capital. 
D) workers are unaware of the pool of unemployed workers as long as they keep their job. 
E) workers will do anything to be paid a higher wage. 
A) the firm pays workers according to a tournament. 
B) workers are less likely to shirk when there is a pool of unemployed workers who are willing to take their job. 
C) the firm agrees to not replace labor with capital. 
D) workers are unaware of the pool of unemployed workers as long as they keep their job. 
E) workers will do anything to be paid a higher wage.

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

Middle-aged workers being paid more than their younger counterparts is likely due to

Accepted Answer

A) the natural inverse relationship between age and experience. 
B) the implementation of a mandatory retirement age by the firm. 
C) more recent education and job training programs being more effective than older programs. 
D) firms using a delayed compensation scheme. 
E) workers prefer delaying their earnings to as late in life as possible. 
A) the natural inverse relationship between age and experience. 
B) the implementation of a mandatory retirement age by the firm. 
C) more recent education and job training programs being more effective than older programs. 
D) firms using a delayed compensation scheme. 
E) workers prefer delaying their earnings to as late in life as possible.

Question 17

Which of the following is not true regarding the incentives different pay structures impose on workers?

Accepted Answer

A) Piece rates are an option when individual output is easily measured by firms. 
B) Tournaments can elicit more effort than a time rate. 
C) Worker effort can be a function of the pay structure. 
D) Worker productivity is unrelated to the pay structure. 
E) Profit sharing is a pay structure designed to elicit more effort from workers, but it can suffer from free-riding. 
A) Piece rates are an option when individual output is easily measured by firms. 
B) Tournaments can elicit more effort than a time rate. 
C) Worker effort can be a function of the pay structure. 
D) Worker productivity is unrelated to the pay structure. 
E) Profit sharing is a pay structure designed to elicit more effort from workers, but it can suffer from free-riding.

Question 18

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 19

When considering the running of a corporation, there is a principal-agent problem between shareholders and the CEO because

Accepted Answer

A) shareholders want the firm to maximize the firm's share price while the CEO wants to maximize profits. 
B) the CEO is paid in part with stock options. 
C) shareholders cannot observe all of the CEO's decisions. 
D) shareholders sign confidentiality agreements. 
E) shareholders require the firm to pay a dividend. 
A) shareholders want the firm to maximize the firm's share price while the CEO wants to maximize profits. 
B) the CEO is paid in part with stock options. 
C) shareholders cannot observe all of the CEO's decisions. 
D) shareholders sign confidentiality agreements. 
E) shareholders require the firm to pay a dividend.

Question 20

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.

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

What prevents a firm from offering a delayed-compensation scheme to its employees and then firing each worker when the worker's value of marginal product equals his or her wage?

One disadvantage of using a tournament is that

If designed correctly, tournaments

Incentive pay schemes generally refer to

The bonding critique criticizes the model of efficiency wages because

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?

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

Spot labor markets are best described as

Which one of the following statements best describes profit sharing?

Which is not true regarding a delayed-compensation contract?

The optimal efficiency wage requires

Which of the following is typically not a possible disadvantage of a tournament?

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.This equilibrium comes about in part because

Piece rates typically

Middle-aged workers being paid more than their younger counterparts is likely due to

Which of the following is not true regarding the incentives different pay structures impose on workers?

When considering the running of a corporation, there is a principal-agent problem between shareholders and the CEO because

A piece rate compensation system

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

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

What prevents a firm from offering a delayed-compensation scheme to its employees and then firing each worker when the worker's value of marginal product equals his or her wage?

One disadvantage of using a tournament is that

If designed correctly, tournaments

Incentive pay schemes generally refer to

The bonding critique criticizes the model of efficiency wages because

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?

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

Spot labor markets are best described as

Which one of the following statements best describes profit sharing?

Which is not true regarding a delayed-compensation contract?

The optimal efficiency wage requires

Which of the following is typically not a possible disadvantage of a tournament?

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.This equilibrium comes about in part because

Piece rates typically

Middle-aged workers being paid more than their younger counterparts is likely due to

Which of the following is not true regarding the incentives different pay structures impose on workers?

When considering the running of a corporation, there is a principal-agent problem between shareholders and the CEO because

A piece rate compensation system

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