Question

QUESTION 41

1. Which of the following factors would tend to increase a person’s reservation wage?

   		An increase in the cost of job search
   		An increase in the replacement rate of unemployment insurance benefits
   		The imperfect experience rating of unemployment insurance
   		A decrease in the person’s skill level

2 points   

QUESTION 42

1. Which of the following is an effect associated with a higher reservation wage?

   		Decreased duration of unemployment
   		Higher post-unemployment wages
   		More underemployment
   		All of these

2 points   

QUESTION 43

1. Holding all else constant, workers in industries that pay higher wages have lower quit rates. This finding is consistent with the view that

   		quits are a form of worker-initiated mobility.
   		workers make mobility decisions based on costs and benefits.
   		a low quit rate is a reliable sign of an above-equilibrium wage.
   		all of these

2 points   

QUESTION 44

1. From society’s point of view, encouraging investments in the expansion or upgrading of education may waste scarce resources if

   		educational activities do not enhance productivity, rather they only serve to signal those individuals who are inherently more productive.
   		education enhances productivity, but the marginal rate of return to society on educational investments is no greater than the marginal rate of return on other forms of investment (such as investment in physical capital).
   		the internal rate of return on educational investments just equals the market interest rate
   		All of these.

Answer 1

41. Option B

The reservation wage is the lowest wage rate at which a worker would be willing to accept a particular type of job. A job offer involving the same type of work and the same working conditions, but at a lower wage rate, would be rejected by the worker.This means that reducing net unemployment insurance benefits (by lowering gross benefits or by taxing unemployment benefits) could significantly lower the average duration of unemployment and the relative number of long duration spells of unemployment.

42. Option B

A sizable proportion of individuals are reluctant to reduce their reservation wage despite extended spells of unemployment. Relative to a calibrated job search model, the reservation wage of unemployed workers starts out too high and declines too slowly. This is consistent with many workers persistently misjudging their prospects, and with reservation wages "anchored" on previous wages.

43. Option A

The workers who quit are much less likely to be unemployed than workers who are laid off.Higher wages create the conditions for workers to be more productive, pointing to reduced shirking by employees due to a higher cost of job loss; lower turnover; an improvement in the average quality of job applicants and improved morale.

44.Option A

If a certain level of education already has signaling value, higher levels of education may actually destroy the signaling value of education.