Chapter 07

The Wage Structure

Multiple Choice Questions

1. What does it mean for the U.S. economy to have a positively skewed wage distribution?

A. Most workers earn below the average wage.

B. A large proportion of workers earn very high wages.
C. The average wage equals the median wage.
D. The distribution of wages is symmetric around the mean.
E. The mean wage equals the median wage.

2. In the United States, the poorest 10 percent of households earn approximately what share of total income?

A. 2%
B. 5%
C. 10%
D. 20%
E. 50%

3. In the United States, the wealthiest 10 percent of households earn approximately what share of total
income?

A. 5%
B. 10%
C. 30%
D. 50%
E. 80%

4. Wage differentials across individual workers are determined in part by:

A. Effort.
B. Productivity.
C. Social capital.
D. Luck.
E. All of the above.

7-1
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
5. The positive correlation between ability and human capital investments "stretches out" wages in the
population, generating what?

A. A positively skewed wage distribution.

B. A negatively skewed wage distribution.
C. An inconsistent wage distribution.
D. A uniform wage distribution.
E. A symmetric wage distribution.

6. Suppose the distribution of innate ability is distributed symmetrically throughout a population but that the
wage distribution is positively skewed. What most likely explains this?

A. A regressive tax code.

B. Decreased immigration.
C. Differences in human capital accumulation.
D. A decreasing Gini coefficient.
E. A non-competitive labor market.

7. The earnings distribution refers to the distribution of

A. wages or earnings in an economy.

B. earnings over an individual's life.
C. wages between races.
D. wages between genders.
E. wage offers throughout an economy.

8. How does the income distribution in the United States compare to other developed countries?

A. The income distribution is vastly more unequal in the United States compared to other developed
countries.
B. The income distribution is vastly more equal in the United States compared to other developed
countries.
C. The income distribution tends to be more unequal in the United States compared to other developed
countries, but not by a huge amount.
D. The income distribution tends to be more equal in the United States compared to other developed
countries, but not by a huge amount.
E. The income distribution must be the same in all developed countries, the United States included,
because of increased globalization.

9. Higher values of the Gini coefficient are associated with

A. greater education inequality.

B. greater income inequality.
C. less income inequality.
D. greater labor mobility.
E. less labor mobility.

7-2
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
10. What does the Gini coefficient measure?

A. The rate of growth of income inequality over time.

B. The degree of inequality in an income distribution.
C. The correlation coefficient between income and education.
D. The covariance of income and education.
E. The degree of tax incidence paid by poor workers.

11. Which of the following does not measure inequality?

A. The 90-10 wage gap.

B. The 50-10 wage gap.
C. The Gini coefficient.
D. The actual Lorenz curve.
E. The perfect-equality Lorenz curve.

12. What is meant by the skill-bias technological explanation of increasing inequality?

A. There has been increasing inequality over the last 40 years because unskilled workers use no
technology.
B. There has been increasing inequality over the last 40 years among high-skilled workers.
C. Inequality has increased because technological advances have not kept pace with the demand for
education.
D. Inequality has increased because technological advances over the last 40 years have complemented the
productivity of skilled labor relative to unskilled labor.
E. Inequality has increased because technological advances over the last 40 years have complemented the
productivity of unskilled labor relative to foreign labor.

13. An approximate Lorenz curve shows

A. the maximum and minimum wage gaps.

B. the relationship between income and tax revenue.
C. the share of income received by age group.
D. the relationship between income and earnings potential.
E. the cumulative share of income earned by quintiles of households.

14. Which of the following measures would best allow one to compare the relative wealth of poor households
to the typical household in an economy?

A. The perfect-equality Lorenz curve.

B. The Gini coefficient.
C. The 90-10 wage gap.
D. The 50-10 wage gap.
E. The 90-50 wage gap.

7-3
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
15. The Gini coefficient in a perfectly unequal society will have a Gini coefficient of _____ while a perfectly
equal society will have a Gini coefficient equal to _____.

A. 0; 1
B. 1; 0
C. 0;
infinity
D. infinity;
0
E. -1; 1

16.
Which one of the following statements about the Gini coefficient is not true?

A. The Gini coefficient reflects the data shown in the Lorenz curve.
B. The Gini coefficient equals zero when there is perfect equality.
C. The Gini coefficient increases as income inequality increases.
D. The Gini coefficient must fall when the amount of income in an economy increases.
E. The Gini coefficient equals one when there is perfect inequality.

17.
Many studies measure inequality with the 90-10, 50-10, or 90-50 wage gaps rather than with the Gini
coefficient. Why?

A.
The Gini coefficient is poorly defined.

B.
The Gini coefficient is ambiguous in terms of where in the earnings distribution inequality exists.

C.
The Gini coefficient tends to jump around from one year to the next due to extreme outliers.

D.
The Gini coefficient is a poor measure of international comparisons of inequality.

E.
The Gini coefficient fails to take into account the entire wage distribution.

7-4
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
18. What is the approximate Gini coefficient associated with the following income distribution?

A. 0.08
B. 0.13
C. 0.23
D. 0.34
E. 0.48

19. Consider an economy with a particular distribution of income. Over the next 10 years, the income of all
households increases by $20,000. How will the Gini coefficient change over those 10 years?

A. The Gini coefficient will increase.

B. The Gini coefficient will decrease.
C. The Gini coefficient will stay the same as all households received the same increase in income.
D. The Gini coefficient will become more negative.
E. It is impossible to determine how the Gini coefficient will change as it will depend on the original
income distribution.

7-5
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
20. In general terms, which of the following statements regarding changes in income inequality in the United
States is correct?

A.
Inequality has increased substantially over the last 40 years as witnessed by the Gini coefficient
increasing from about 0.1 in 1970 to over 0.7 in 2010.

B.
Inequality has increased slightly over the last 40 years as witnessed by the Gini coefficient increasing
from below 0.4 in 1970 to over 0.45 in 2010.

C.
Inequality has decreased substantially over the last 40 years as witnessed by the Gini coefficient
decreasing from about 0.5 in 1970 to almost 0.05 in 2010.

D.
Inequality has decreased substantially over the last 40 years as witnessed by the Gini coefficient
decreasing from about 0.8 in 1970 to just over 0.25 in 2010.

E.
Inequality has stayed about the same over the last 40 years as witnessed by a Gini coefficient that has
hovered around 0.6.

7-6
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
21.
How have average wages of college graduates compared to average wages of high school graduates over
the last 30 years?

A.
Relative college wages have held steady over the last 30 years, with college graduates earning about
60 percent more than high school graduates during the entire period.

B.
Relative college wages have held steady over the last 30 years, with college graduates earning about
90 percent more than high school graduates during the entire period.

C.
Relative college wages have increased drastically over the last 30 years, from being 50 percent more
than high school wages in 1980 to almost 100 percent more in 2010.

D.
Relative college wages have increased drastically over the last 30 years, from being 20 percent more
than high school wages in 1980 to almost 60 percent more in 2010.

E.
Relative college wages have decreased slightly over the last 30 years, from being 40 percent more than
high school wages in 1980 to just under 30 percent more in 2010.

22. In the United States over the last 30 years, wage differentials have

A. narrowed for all groups of workers.

B. increased for all groups of workers.
C. increased for skilled workers but have narrowed for unskilled workers.
D. decreased for skilled workers but have increased for unskilled workers.
E. increased for women but have narrowed for men.

23. Which of the following statements regarding the increase in supply of high-skill labor in the United States
since 1960 as measured by education level is not true?

A. The percent of workers without a high school degree has fallen dramatically since 1960.
B. The percent of workers with a high school degree has fallen dramatically since 1960.
C. The percent of workers with a college degree has increased dramatically since 1960.
D. The percent of workers with an advanced degree has increased dramatically since 1960.
E. The supply of highly-skilled women to the workforce has increased dramatically since 1960.

7-7
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
24. Which of the following is not a possible explanation as to why wage inequality increased markedly over the
last 40 years in the United States?

A. There was an increase in the supply of low-skill workers, particularly through immigration.
B. Federal legislation allowed employers to legally engage in more racial discrimination.
C. Competition from international economies has increased demand for highly productive workers.
D.
Recent technological changes have been complementary to skilled labor while substituting for unskilled
labor.

E. Institutional changes in the United States such as a steady decline in union coverage and a falling real
minimum wage have led to changes in the wage distribution.

25. Large disparities in wages could possibly result from all but which one of the following?

A. Parental investment in a child's human capital.

B. Increases in the amount of middle class jobs.
C. Skill-biased technological change.
D. Globalization.
E. An increase in the demand for highly skilled labor.

26. Expansions in globalization and the reduction of trade barriers world-wide during the 1980s and 1990s
most likely had what effect on the demand for U.S. labor?

A. The demand for unskilled workers increased, while the demand for skilled workers decreased.
B. The demand for unskilled workers decreased, while the demand for skilled workers increased.
C. The demand for unskilled and skilled workers increased.
D. The demand for unskilled and skilled workers decreased.
E. The demand for unskilled workers increased, while the demand for skilled workers didn't change.

27. The superstar phenomenon explains why

A. some people are paid extraordinary sums of money for talents that many people have.
B. a few people are paid extraordinary sums of money for extreme talents that only a few people have.
C. most people are paid relatively modest sums of money for talents that just a few people have.
D. superstars have talents that far exceed even the next best person in the field.
E. there are fewer superstars with the passing of time.

7-8
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
28.
Extraordinary earnings of superstars require

A.
a technology that allows the superstar’s output to be mass distributed.

B.
there to be only one superstar.

C.
all customers to agree on which potential superstar is the best.

D.
the superstar’s talents to be substantially better than anyone else’s talents.

E.
unification of international markets for the superstar’s services.

29. Social mobility refers to

A. the ability for a worker to move up in a firm's hierarchy.

B. the ability for a worker to increase his or her human capital.
C. the link between the skills and income of parents and children.
D. the relationship between human capital and wages.
E. the degree to which society dictates the wage distribution.

7-9
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
30.
In the context of intergenerational inequality, regression toward the mean is captured by which of the
following?

A.
The tendency for inequality to be wider as a country experiences economic growth.

B.
The tendency for countries to diverge in their inequality.

C.
The tendency for income differences across families to get smaller over time as the various families
move toward the mean income of the population.

D.
The tendency for the 90-50 wage gap to approach the 50-10 wage gap as a country experiences
economic growth.

E.
The tendency for the tax code to erode inequality by targeting the mean tax rate to mean income.

7-10
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McGraw-Hill Education.
 Chapter 07 The Wage Structure Answer Key

Multiple Choice Questions

1. What does it mean for the U.S. economy to have a positively skewed wage distribution?

A. Most workers earn below the average wage.

B. A large proportion of workers earn very high wages.
C. The average wage equals the median wage.
D. The distribution of wages is symmetric around the mean.
E. The mean wage equals the median wage.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: The Earnings Distribution

2. In the United States, the poorest 10 percent of households earn approximately what share of total
income?

A. 2%
B. 5%
C. 10%
D. 20%
E. 50%

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: The Earnings Distribution

3. In the United States, the wealthiest 10 percent of households earn approximately what share of total
income?

A. 5%
B. 10%
C. 30%
D. 50%
E. 80%

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: The Earnings Distribution

7-11
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
4. Wage differentials across individual workers are determined in part by:

A. Effort.
B. Productivity.
C. Social capital.
D. Luck.
E. All of the above.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: The Earnings Distribution

5. The positive correlation between ability and human capital investments "stretches out" wages in the
population, generating what?

A. A positively skewed wage distribution.

B. A negatively skewed wage distribution.
C. An inconsistent wage distribution.
D. A uniform wage distribution.
E. A symmetric wage distribution.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: The Earnings Distribution

6. Suppose the distribution of innate ability is distributed symmetrically throughout a population but that
the wage distribution is positively skewed. What most likely explains this?

A. A regressive tax code.

B. Decreased immigration.
C. Differences in human capital accumulation.
D. A decreasing Gini coefficient.
E. A non-competitive labor market.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: The Earnings Distribution

7. The earnings distribution refers to the distribution of

A. wages or earnings in an economy.

B. earnings over an individual's life.
C. wages between races.
D. wages between genders.
E. wage offers throughout an economy.

AACSB: Reflective Thinking

7-12
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
 Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: The Earnings Distribution

8. How does the income distribution in the United States compare to other developed countries?

A. The income distribution is vastly more unequal in the United States compared to other developed
countries.
B. The income distribution is vastly more equal in the United States compared to other developed
countries.
C. The income distribution tends to be more unequal in the United States compared to other developed
countries, but not by a huge amount.
D. The income distribution tends to be more equal in the United States compared to other developed
countries, but not by a huge amount.
E. The income distribution must be the same in all developed countries, the United States included,
because of increased globalization.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: The Earnings Distribution

9. Higher values of the Gini coefficient are associated with

A. greater education inequality.

B. greater income inequality.
C. less income inequality.
D. greater labor mobility.
E. less labor mobility.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: Measuring Inequality

10. What does the Gini coefficient measure?

A. The rate of growth of income inequality over time.

B. The degree of inequality in an income distribution.
C. The correlation coefficient between income and education.
D. The covariance of income and education.
E. The degree of tax incidence paid by poor workers.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: Measuring Inequality

7-13
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
11. Which of the following does not measure inequality?

A. The 90-10 wage gap.

B. The 50-10 wage gap.
C. The Gini coefficient.
D. The actual Lorenz curve.
E. The perfect-equality Lorenz curve.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: Measuring Inequality

12. What is meant by the skill-bias technological explanation of increasing inequality?

A. There has been increasing inequality over the last 40 years because unskilled workers use no
technology.
B. There has been increasing inequality over the last 40 years among high-skilled workers.
C. Inequality has increased because technological advances have not kept pace with the demand for
education.
D. Inequality has increased because technological advances over the last 40 years have complemented
the productivity of skilled labor relative to unskilled labor.
E. Inequality has increased because technological advances over the last 40 years have complemented
the productivity of unskilled labor relative to foreign labor.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: Measuring Inequality

13. An approximate Lorenz curve shows

A. the maximum and minimum wage gaps.

B. the relationship between income and tax revenue.
C. the share of income received by age group.
D. the relationship between income and earnings potential.
E. the cumulative share of income earned by quintiles of households.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: Measuring Inequality

7-14
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
14. Which of the following measures would best allow one to compare the relative wealth of poor
households to the typical household in an economy?

A. The perfect-equality Lorenz curve.

B. The Gini coefficient.
C. The 90-10 wage gap.
D. The 50-10 wage gap.
E. The 90-50 wage gap.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: Measuring Inequality

15. The Gini coefficient in a perfectly unequal society will have a Gini coefficient of _____ while a
perfectly equal society will have a Gini coefficient equal to _____.

A. 0; 1
B. 1; 0
C. 0;
infinity
D. infinity;
0
E. -1; 1

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: Measuring Inequality

16.
Which one of the following statements about the Gini coefficient is not true?

A. The Gini coefficient reflects the data shown in the Lorenz curve.
B. The Gini coefficient equals zero when there is perfect equality.
C. The Gini coefficient increases as income inequality increases.
D. The Gini coefficient must fall when the amount of income in an economy increases.
E. The Gini coefficient equals one when there is perfect inequality.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: Measuring Inequality

7-15
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
17.
Many studies measure inequality with the 90-10, 50-10, or 90-50 wage gaps rather than with the Gini
coefficient. Why?

A.
The Gini coefficient is poorly defined.

B.
The Gini coefficient is ambiguous in terms of where in the earnings distribution inequality exists.

C.
The Gini coefficient tends to jump around from one year to the next due to extreme outliers.

D.
The Gini coefficient is a poor measure of international comparisons of inequality.

E.
The Gini coefficient fails to take into account the entire wage distribution.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: Measuring Inequality

18. What is the approximate Gini coefficient associated with the following income distribution?

A. 0.08
B. 0.13
C. 0.23
D. 0.34
E. 0.48

AACSB: Analytical Thinking

Blooms: Apply
Difficulty: 03 Hard
Topic: Measuring Inequality

7-16
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
19. Consider an economy with a particular distribution of income. Over the next 10 years, the income of all
households increases by $20,000. How will the Gini coefficient change over those 10 years?

A. The Gini coefficient will increase.

B. The Gini coefficient will decrease.
C. The Gini coefficient will stay the same as all households received the same increase in income.
D. The Gini coefficient will become more negative.
E. It is impossible to determine how the Gini coefficient will change as it will depend on the original
income distribution.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 03 Hard
Topic: Measuring Inequality

20. In general terms, which of the following statements regarding changes in income inequality in the
United States is correct?

A.
Inequality has increased substantially over the last 40 years as witnessed by the Gini coefficient
increasing from about 0.1 in 1970 to over 0.7 in 2010.

B.
Inequality has increased slightly over the last 40 years as witnessed by the Gini coefficient
increasing from below 0.4 in 1970 to over 0.45 in 2010.

C.
Inequality has decreased substantially over the last 40 years as witnessed by the Gini coefficient
decreasing from about 0.5 in 1970 to almost 0.05 in 2010.

D.
Inequality has decreased substantially over the last 40 years as witnessed by the Gini coefficient
decreasing from about 0.8 in 1970 to just over 0.25 in 2010.

E.
Inequality has stayed about the same over the last 40 years as witnessed by a Gini coefficient that
has hovered around 0.6.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: The Wage Structure: Basic Facts

7-17
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
21.
How have average wages of college graduates compared to average wages of high school graduates
over the last 30 years?

A.
Relative college wages have held steady over the last 30 years, with college graduates earning about
60 percent more than high school graduates during the entire period.

B.
Relative college wages have held steady over the last 30 years, with college graduates earning about
90 percent more than high school graduates during the entire period.

C.
Relative college wages have increased drastically over the last 30 years, from being 50 percent more
than high school wages in 1980 to almost 100 percent more in 2010.

D.
Relative college wages have increased drastically over the last 30 years, from being 20 percent more
than high school wages in 1980 to almost 60 percent more in 2010.

E.
Relative college wages have decreased slightly over the last 30 years, from being 40 percent more
than high school wages in 1980 to just under 30 percent more in 2010.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: The Wage Structure: Basic Facts

22. In the United States over the last 30 years, wage differentials have

A. narrowed for all groups of workers.

B. increased for all groups of workers.
C. increased for skilled workers but have narrowed for unskilled workers.
D. decreased for skilled workers but have increased for unskilled workers.
E. increased for women but have narrowed for men.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: The Wage Structure: Basic Facts

7-18
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
23. Which of the following statements regarding the increase in supply of high-skill labor in the United
States since 1960 as measured by education level is not true?

A. The percent of workers without a high school degree has fallen dramatically since 1960.
B. The percent of workers with a high school degree has fallen dramatically since 1960.
C. The percent of workers with a college degree has increased dramatically since 1960.
D. The percent of workers with an advanced degree has increased dramatically since 1960.
E. The supply of highly-skilled women to the workforce has increased dramatically since 1960.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: Why Did Wage Inequality Increase?

24. Which of the following is not a possible explanation as to why wage inequality increased markedly over
the last 40 years in the United States?

A. There was an increase in the supply of low-skill workers, particularly through immigration.
B. Federal legislation allowed employers to legally engage in more racial discrimination.
C. Competition from international economies has increased demand for highly productive workers.
D.
Recent technological changes have been complementary to skilled labor while substituting for
unskilled labor.

E. Institutional changes in the United States such as a steady decline in union coverage and a falling
real minimum wage have led to changes in the wage distribution.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: Why Did Wage Inequality Increase?

25. Large disparities in wages could possibly result from all but which one of the following?

A. Parental investment in a child's human capital.

B. Increases in the amount of middle class jobs.
C. Skill-biased technological change.
D. Globalization.
E. An increase in the demand for highly skilled labor.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: Why Did Wage Inequality Increase?

7-19
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McGraw-Hill Education.
26. Expansions in globalization and the reduction of trade barriers world-wide during the 1980s and 1990s
most likely had what effect on the demand for U.S. labor?

A. The demand for unskilled workers increased, while the demand for skilled workers decreased.
B. The demand for unskilled workers decreased, while the demand for skilled workers increased.
C. The demand for unskilled and skilled workers increased.
D. The demand for unskilled and skilled workers decreased.
E. The demand for unskilled workers increased, while the demand for skilled workers didn't change.

AACSB: Analytical Thinking

Accessibility: Keyboard Navigation
Blooms: Analyze
Difficulty: 03 Hard
Topic: Why Did Wage Inequality Increase?

27. The superstar phenomenon explains why

A. some people are paid extraordinary sums of money for talents that many people have.
B. a few people are paid extraordinary sums of money for extreme talents that only a few people have.
C. most people are paid relatively modest sums of money for talents that just a few people have.
D. superstars have talents that far exceed even the next best person in the field.
E. there are fewer superstars with the passing of time.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: The Earnings of Superstars

28.
Extraordinary earnings of superstars require

A.
a technology that allows the superstar’s output to be mass distributed.

B.
there to be only one superstar.

C.
all customers to agree on which potential superstar is the best.

D.
the superstar’s talents to be substantially better than anyone else’s talents.

E.
unification of international markets for the superstar’s services.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation

7-20
Copyright © 2016 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
 Blooms: Understand
Difficulty: 02 Medium
Topic: The Earnings of Superstars

29. Social mobility refers to

A. the ability for a worker to move up in a firm's hierarchy.

B. the ability for a worker to increase his or her human capital.
C. the link between the skills and income of parents and children.
D. the relationship between human capital and wages.
E. the degree to which society dictates the wage distribution.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 01 Easy
Topic: Inequality across Generations

30.
In the context of intergenerational inequality, regression toward the mean is captured by which of the
following?

A.
The tendency for inequality to be wider as a country experiences economic growth.

B.
The tendency for countries to diverge in their inequality.

C.
The tendency for income differences across families to get smaller over time as the various families
move toward the mean income of the population.

D.
The tendency for the 90-50 wage gap to approach the 50-10 wage gap as a country experiences
economic growth.

E.
The tendency for the tax code to erode inequality by targeting the mean tax rate to mean income.

AACSB: Reflective Thinking

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 02 Medium
Topic: Inequality across Generations

7-21
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