Test on Economics of Unemployment

Question 1: The sectoral shifts hypothesis suggests that unemployed workers who experience long spells of unemployment will quickly find new jobs that perfectly match their existing skills in new industries without needing to adjust those skills.

A. Ano

B. Ne

Explanation: The sectoral shifts hypothesis claims there will always be a pool of unemployed workers who experience long spells of unemployment because their skills do not match those that employers are looking for (structural unemployment). When an industry experiences a negative shock, those workers who become unemployed will eventually become employed in new industries after they adjust their skills to match the needs of new, growing industries, rather than new industries adjusting to their existing skills.

Question 2: Frictional unemployment is considered productive because the search activities of workers and firms improve the allocation of resources.

A. Ano

B. Ne

Explanation: Frictional unemployment is considered productive because the search activities of workers and firms that result in frictional unemployment improve the allocation of resources.

Question 3: How does the United States fund its unemployment compensation system and what is a characteristic of its benefits?

A. The system is funded by taxing all firms at the same rate, and all unemployed workers receive the same benefit regardless of previous job.

B. The system is funded by taxing firms more when they have a history of causing more layoffs, and unemployment benefits are a greater percentage of previous earnings for low-wage workers.

C. The system is funded by taxing firms based on their profits, and the average replacement ratio associated with benefits is 50%.

D. The system is funded by taxing nonunion firms more than union firms, and benefits are based on family size and age.

Explanation: According to the study materials, the United States funds its unemployment compensation system by 'taxing firms more when they have a history of causing more layoffs, up to a point.' It also states that 'Unemployment benefits are a greater percentage of previous earnings for low-wage workers than for high-wage workers.'

Question 4: According to the study materials, which statement best explains why firms might set an efficiency wage above the competitive wage?

A. Workers are generally unwilling to work for the competitive wage.

B. The firm finds it costly to monitor how much effort workers are putting into their jobs.

C. Most of the firm's workers lack higher education.

D. The firm aims to maximize its profits by paying the lowest possible wage.

Explanation: The study materials state that firms are most likely to set an efficiency wage above the competitive wage if 'firms find it expensive to monitor worker output.' This suggests that a higher wage incentivizes workers to perform well without constant supervision, making monitoring costs less of a concern.

Question 5: For the Borjas8E_CH12 test, the correct answer for question 12 is E.

A. Ano

B. Ne

Explanation: The answer key for Borjas8E_CH12 lists '12) E'.