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Chapter 19

Earnings and Discrimination

Educators


Problem 1

College students sometimes work as summer interns for private firms or the government. Many of these positions pay little or nothing.
a. What is the opportunity cost of taking such a job?
b. Explain why students are willing to take these jobs.
c. If you were to compare the earnings later in life of workers who had worked as interns and those who had taken summer jobs that paid more, what would you expect to find?

Yi Chun L.
Washington University in St Louis

Problem 2

As explained in Chapter 6, a minimum-wage law distorts the market for low-wage labor. To reduce this
distortion, some economists advocate a two-tiered minimum-wage system, with a regular minimum wage for adult workers and a lower, "subminimum" wage for teenage workers. Give two reasons a single minimum wage might distort the labor market for teenage workers more than it would the market for adult workers.

Yi Chun L.
Washington University in St Louis

Problem 3

A basic finding of labor economics is that workers who have more experience in the labor force are paid more than workers who have less experience (holding constant the amount of formal education). Why might this be so? Some studies have also found that experience at the same job (called $\textit{job tenure}$) has an extra positive influence on wages. Explain why this might occur.

Yi Chun L.
Washington University in St Louis

Problem 4

At some colleges and universities, economics professors receive higher salaries than professors in some other fields.
a. Why might this be true?
b. Some other colleges and universities have a policy of paying equal salaries to professors in all fields. At some of these schools, economics professors have lighter teaching loads than professors in
some other fields. What role do the differences in teaching loads play?

Kaylee M.
Numerade Educator

Problem 5

Imagine that someone offered you a choice: You could spend four years studying at the world's best university, but you would have to keep your attendance there a secret. Or you could be awarded an official degree from the world's best university, but you couldn't actually attend. Which choice do you think would enhance your future earnings more? What does your answer say about the debate over signaling versus human capital in the role of education?

Yi Chun L.
Washington University in St Louis

Problem 6

When recording devices were first invented more than 100 years ago, musicians could suddenly supply their music to large audiences at low cost. How do you suppose this development affected the income of the best musicians? How do you suppose it affected the income of average musicians?

Kaylee M.
Numerade Educator

Problem 7

A current debate in education is whether teachers should be paid on a standard pay scale based solely
upon their years of training and teaching experience, or whether part of their salary should be based upon their performance (called "merit pay").
a. Why might merit pay be desirable?
b. Who might be opposed to a system of merit pay?
c. What is a potential challenge of merit pay?
d. A related issue: Why might a school district decide to pay teachers significantly more than the salaries offered by surrounding districts?

Yi Chun L.
Washington University in St Louis

Problem 8

When Alan Greenspan (who would later become chairman of the Federal Reserve) ran an economic
consulting firm in the 1960s, he primarily hired female economists. He once told the $\textit{New York Times}$, "I always valued men and women equally, and I found that because others did not, good women economists were cheaper than men." Is Greenspan's behavior profit-maximizing? Is it admirable or despicable? If more employers were like Greenspan, what would happen to the wage differential between men and women? Why might other economic consulting firms at the time not have followed Greenspan's business strategy?

Yi Chun L.
Washington University in St Louis