Modern Labor Economics, 10e (Ehrenberg/Smith)

Chapter 14 Unemployment
1) The unemployment rate tells us
A) the percentage of the population that is not working.
B) the percentage of the population that is searching for work.
C) the percentage of the labor force that has been laid off.
D) the percentage of the labor force that is not working.
Answer: D
Question Status: Previous Edition

2) If the unemployment rate increases

A) the employment rate must decrease.
B) the employment rate must increase.
C) the employment rate will generally decrease by the same amount.
D) the employment rate may either increase or decrease.
Answer: D
Question Status: Previous Edition

3) Most workers who are laid off

A) return to work with the same employer.
B) find work with another employer.
C) stay unemployed for a relatively long duration.
D) drop out of the labor force.
Answer: A
Question Status: Previous Edition

4) The stock of unemployed workers at any given time consists mostly of

A) people who have short spells of unemployment.
B) people who have long spells of unemployment.
C) people who have been laid off from one employer and become employed by another.
D) people who have searched for jobs, but who have become discouraged.
Answer: A
Question Status: Previous Edition

5) A worker who has quit one job to have time to search for a similar position is counted as
what type of unemployment?
A) frictional
B) occupational
C) regional
D) cyclical
Answer: A
Question Status: Previous Edition

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 6) The largest source of unemployed workers is ________ and the second largest is ________.
A) job losers; new entrants
B) job losers; reentrants
C) job leavers; new entrants
D) job leavers; reentrants
Answer: B
Question Status: Previous Edition

7) A worker who is laid off because his or her company chooses to move from Wisconsin to
North Carolina is counted as ________ unemployment.
A) frictional
B) wait
C) structural
D) cyclical
Answer: C
Question Status: Previous Edition

8) A retraining program to teach unemployed auto workers how to program computers would
help to reduce ________ unemployment.
A) frictional
B) cyclical
C) seasonal
D) structural
Answer: D
Question Status: Previous Edition

9) The Worker Adjustment and Retraining Notification Act

A) requires all employers to notify employees and local government officials with 60 days
advance notice before they shut down or make large-scale lay offs.
B) has probably decreased the rate at which displaced workers suffer unemployment.
C) has probably decreased the rate at which displaced workers suffer wage losses.
D) has probably increased the productivity of businesses that are about to close.
Answer: B
Question Status: Previous Edition

10) Advance notice of lay-offs should help to reduce

A) frictional unemployment.
B) structural unemployment.
C) cyclical unemployment and frictional unemployment.
D) frictional unemployment and structural unemployment.
Answer: D
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11) Wait unemployment is a form of ________ unemployment.

A) structural
B) frictional
C) cyclical
D) structural and cyclical
Answer: A
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 12) Paying efficiency wages to reduce turnover may be profit-maximizing for companies, but it
also contributes to ________ unemployment.
A) frictional
B) regional
C) cyclical
D) structural
Answer: D
Question Status: Previous Edition

13) European policies which make it difficult to dismiss workers and reduce wage flexibility
have probably
A) increased the rate of job creation.
B) decreased the unemployment rate.
C) decreased the rate of long-term unemployment.
D) increased the costs of doing business.
Answer: D
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14) Which of the following does NOT explain why firms and employees may prefer layoffs to
wage reductions?
A) Employees may possess firm-specific training.
B) Employees may possess general training.
C) Firms may have implicitly promised a wage path to their employees.
D) Experienced workers may prefer a certain income stream to an uncertain income
stream.
Answer: B
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15) If unemployment insurance were perfectly experience rated then

A) unemployment would probably rise.
B) unemployment would probably fall.
C) unemployment could either rise or fall.
D) unemployment would be unchanged.
Answer: B
Question Status: Previous Edition

16) Experience rating is

A) assigning a higher UI tax to employers who lay off workers frequently.
B) assigning a higher UI tax to employers who have a large number of experienced
workers.
C) assigning a higher UI tax to employers who have a large number of inexperienced
workers.
D) assigning a higher UI tax to employers who have not been in business for very long,
because these businesses are likely to fail.
Answer: A
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 17) A construction worker who is not working due to a snow storm would be counted as
________ unemployed.
A) frictionally
B) structurally
C) cyclically
D) seasonally
Answer: D
Question Status: Previous Edition

18) The natural rate of unemployment

A) is currently about 4%.
B) must be the same for every demographic group.
C) occurs when job vacancies equal the number of unemployed workers.
D) hit bottom in the 1970s.
Answer: C
Question Status: Previous Edition

19) A reservation wage is

A) the lowest wage a worker will accept.
B) the lowest wage a company will offer.
C) the highest wage a company will offer.
D) the wage at which a company's profits are maximized.
Answer: A
Question Status: Previous Edition

20) An increase in an individual's reservation wage

A) will increase the duration of the individual's unemployment but not affect the expected
wage.
B) will increase the individual's expected wage but not affect the duration of
unemployment.
C) will not change the individual's duration of unemployment.
D) will increase both the individual's duration of unemployment and expected wage.
Answer: D
Question Status: Previous Edition

21) Which of these is NOT an implication of the model of job search?

A) Virtually all individuals will be underemployed.
B) Workers with identical skill levels will generally receive different wages if their
reservation wages differ.
C) If the cost of being unemployed falls, a person's reservation wage will fall.
D) Search unemployment is a rational strategy in a world of imperfect information.
Answer: C
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 22) In claimant bonus experiments, bonuses to workers ________ the average duration of
unemployment, and bonuses to employers ________ the average duration of unemployment.
A) increased; did not change
B) decreased; did not change
C) did not change; increased
D) did not change; decreased
Answer: B
Question Status: Previous Edition

23) Theoretically, existence of generous unemployment insurance will

A) reduce the unemployment rate.
B) reduce reservation wages.
C) improve job matches.
D) increase income inequality.
Answer: C
Question Status: Previous Edition

24) The wage curve

A) shows that with higher regional rates of unemployment, wages for otherwise
comparable workers are higher.
B) is evidence that most national economies have regionally integrated labor markets.
C) may exist because efficiency-wage premiums can be smaller in areas of high
unemployment.
D) is evidence that wages are always at equilibrium.
Answer: C
Question Status: Previous Edition

25) Unemployment insurance in the United States is structured so that

A) replacement rates are constant.
B) almost all unemployed workers can collect UI benefits.
C) UI benefits are partially linked to previous pay.
D) UI benefits may be collected for one year after the job loss.
Answer: C
Question Status: Previous Edition

26) Suppose that no one enters or leaves the labor force and that the fraction of the unemployed
getting a job (in a given period) is 0.10 and the fraction of the employment becoming
unemployed is 0.02. What is the approximate unemployment rate when the flows into and
out of unemployed are in balance?
A) 9%
B) 10%
C) 17%
D) 22%
Answer: C
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 27) Which of the following describes the wage curve?
A) Workers with higher wages are less likely to become unemployed.
B) Regions with higher wages have lower regional unemployment rates.
C) As more workers seek jobs, market wages fall.
D) As regional wages increase, the number of persons seeking jobs goes up.
Answer: B
Question Status: Previous Edition

28) A research observes that more generous unemployment benefits results in a greater duration
of unemployment and a great improvement in job matches. This suggests that more
generous benefits:
A) makes job searchers more selective in the jobs they accept.
B) makes job searchers increase the intensity of search by searching more opening per
period.
C) both A and B.
D) neither A nor B.
Answer: A
Question Status: Previous Edition

29) If workers for a firm have mainly general human capital, then when the demand for its
output falls, the firm will mainly:
A) lower wages.
B) cut back on employment.
C) cut work hours of all workers.
D) increase its specific investment in workers as the opportunity cost of training is low.
Answer: B
Question Status: Previous Edition

30) If Ajax Incorporated is a very unstable employer that frequently lays off workers, it will
prefer to locate its plants in states:
A) with perfect experience rating of unemployment insurance tax rates.
B) with imperfect experience rating such that once its layoffs increase beyond a certain
level, it does not have to pay a higher unemployment insurance tax rate.
C) with imperfect experience ratings such that once its layoffs fall below a certain level, it
pays the same minimum unemployment insurance tax rate.
D) with imperfect experience ratings such that above a certain level, the unemployment
tax rate increases more than in proportion to layoffs.
Answer: B
Question Status: Previous Edition

31) If all employers pay an efficiency wage, then

A) more employees would shirk.
B) unemployment would be higher.
C) firms would be better able to monitor their employees productivity.
D) all of the above.
Answer: B
Question Status: New

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 32) If all employers pay an efficiency wage, then, comparing average wages and unemployment
rates across areas, and if workers in areas with low unemployment rate can easily find
alternative jobs, one would expect
A) average wages to be directly (positively) related to unemployment rates.
B) average wages times one minus the unemployment rate to be the same across areas.
C) the duration of unemployment, but not necessarily the rate, to be inversely related to
the average wage.
D) average wages will be higher in areas with low unemployment rates.
Answer: D
Question Status: New

33) If all employers pay an efficiency wage, then which of the following will increase the
unemployment rate, other things the same?
A) It becomes less costly to monitor workers productivity.
B) Firms due to a mistake reduce their wages.
C) The cost to the firm of workers shirking goes up.
D) Workers put a lower value on shirking.
Answer: C
Question Status: New

34) Unemployment tends to go up when aggregate demand falls mainly because:

A) when wages fall, workers seek alternative employment.
B) unions renegotiate for lower wages, making it difficult for job searchers to find suitable
jobs.
C) wage rates then to be downward rigid.
D) most human capital is general and not firm-specific.
Answer: C
Question Status: New

35) A nation has full employment when

A) wages and prices are stable.
B) unemployment is at its lowest level.
C) unemployment rates are the same across all demographic groups.
D) workers are earning a living wage.
Answer: A
Question Status: New

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