Modern Labor Economics
Chapter 10 Worker Mobility: Migration, Immigration, and Turnover
1) The human capital theory of migration compares the costs of a move to
A) the sum of increased utility levels from each year on the new job.
B) the sum of the utility levels from each year on the new job.
C) the discounted sum of increased utility levels from each year on the new job.
D) the discounted sum of utility levels from each year on the new job.
Answer: C
Question Status: Old
2) An increase in the discount rate would make a worker
A) more likely to change jobs.
B) less likely to change jobs.
C) exactly as likely as before to change jobs.
D) either more or less likely to change jobs.
Answer: B
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3) An increase in his or her expected career length will make a worker
A) more likely to change jobs.
B) less likely to change jobs.
C) exactly as likely to change jobs.
D) either more or less likely to change jobs.
Answer: A
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4) The most important determinant of migration is
A) education.
B) race.
C) age.
D) experience.
Answer: C
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5) Within each age group, people with ________ are most likely to migrate.
A) a large amount of education
B) a large amount of experience
C) young children
D) no current employment
Answer: A
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6) Which of the following does NOT explain why people are less likely to move long distances
than short distances?
A) information costs
B) psychic costs
C) monetary costs
D) differences in available salaries
Answer: D
Question Status: Old
7) For workers who emigrate to the United States from a country with a less equal distribution of
earnings,
A) the largest potential gain exists for unskilled workers.
B) the largest potential gain exists for skilled workers.
C) immigrants will be positively selected with respect to skills.
D) immigrants will, on average, have a higher skill level than the workers who do not emigrate.
Answer: A
Question Status: Old
8) The earnings of immigrants, when compared to those of similar native workers,
A) start out above those of the native workers, but increase more slowly.
B) start out above those of the native workers, and increase more rapidly.
C) start out below those of the native workers, and increase more slowly.
D) start out below those of the native workers, but increase more rapidly.
Answer: D
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9) When compared to the earnings of political migrants, the earnings of economic migrants
A) start out lower, and increase more slowly.
B) start out lower, but increase more quickly.
C) start out higher, but increase more slowly.
D) start out higher, and increase more quickly.
Answer: C
Question Status: Old
10) Most immigrants' discounted lifetime earnings will be lower than those of comparable native
workers. This shows
A) that these immigrants miscalculated when deciding to emigrate.
B) that these immigrants made the right decision about immigration.
C) that these immigrants must be of lower quality than native workers.
D) nothing about their other options in their native country, so we cannot tell if their decision to
emigrate was wise.
Answer: D
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11) Quit rates rise as
A) wages increase.
B) firm size decreases.
C) workers age.
D) the unemployment rate increases.
Answer: B
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12) Which of the following would cause quit rates to decline?
A) an increase in the urbanization of the population
B) a decrease in the unemployment rate
C) a decrease in average wages
D) an increase in the average age of workers
Answer: D
Question Status: Old
13) The overall wage ratio of newly arrived male immigrants to native-born men fell
substantially from 1960 to 1980. This is probably because
A) these immigrants miscalculated when deciding to come to the United States.
B) these immigrants face considerable discrimination in the American labor market.
C) the relative skill level of immigrants has declined.
D) these immigrants are gross substitutes for native-born workers.
Answer: C
Question Status: Old
14) The Immigration Reform and Control Act of 1986 was
A) the first act to increase the number of immigrants allowed to enter the United States each
year.
B) the first act to punish employers of illegal immigrants.
C) the first act to place quotas on immigrants by skill level.
D) the first act to limit immigration to America.
Answer: B
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15) An increase in the number of immigrants causes
A) the labor demand curve to shift to the left.
B) the labor supply curve to shift to the left.
C) the labor supply curve to shift to the right.
D) the labor demand curve to become flatter.
Answer: C
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16) The annual rate of immigration to the United States (per thousand of United States
population)
A) reached an all-time high in the early 1990s.
B) reached a post-World War II high in the early 1990s.
C) reached an all-time high in the 1930s.
D) has been fairly constant since World War II.
Answer: B
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17) The deportation of illegal aliens may create jobs on a one-to-one basis for native workers if
A) the minimum wage is above the equilibrium wage.
B) the minimum wage is below the equilibrium wage.
C) the labor supply curve is very steep.
D) the labor supply curve is very flat.
Answer: A
Question Status: Old
18) If skilled and unskilled labor are gross complements, then an increase in immigration and a
corresponding decrease in wages paid to unskilled laborers will cause
A) an increase in the employment of skilled labor.
B) a decrease in the employment of skilled labor.
C) no change in the employment of skilled labor.
D) a decrease in the employment of unskilled labor.
Answer: A
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19) If skilled and unskilled labor are gross substitutes and if an influx of unskilled immigrants
drives down the wages paid to unskilled workers, it will also
A) increase the wage of skilled workers.
B) decrease the wage of skilled workers.
C) either increase or decrease the wage of skilled workers.
D) cause no change in the wage of skilled workers.
Answer: B
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20) Studies using local labor markets as units of observation estimate that the effects of
immigration on native-born wages and employment are ________. This could be because
________.
A) minimal; immigrants choose to locate in areas where demand is expanding
B) minimal; internal migration by native-born workers is minimal
C) large; immigrants and native-born workers are gross substitutes
D) large; internal migration by native-born workers is large
Answer: A
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21) As long as immigrants are paid their marginal product and pay more in taxes than they
consume in government benefits, then an increase of immigrants will cause
A) aggregate income of natives to increase.
B) average wages of workers to increase.
C) individual incomes of all workers to increase.
D) average wages of workers to stay the same.
Answer: A
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22) Which of the following can NOT explain why wages in Miami did not fall and
unemployment rates did not increase after the Mariel boatlift?
A) The labor demand curve shifted to the right.
B) Some people moved out of Miami in response to the influx.
C) Miami's economy went through a rapid "boom" right after the immigrants arrived.
D) A high percentage of the immigrants were unskilled workers.
Answer: D
Question Status: Old
23) Young workers are more likely to quit their jobs than older workers for all of the following
reasons EXCEPT
A) younger workers have a longer period over which to collect the benefits of a job change.
B) younger workers have lower psychic costs from mobility.
C) younger workers have better job matches.
D) younger workers have less firm-specific training.
Answer: C
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24) Average job tenure is lower in the United States than in most other industrialized countries.
Theory predicts that this could be because
A) the United States is less densely populated.
B) American workers receive higher levels of firm-specific training.
C) the costs of residential mobility are lower in the Unites States.
D) most American workers have employer-based health insurance.
Answer: C
Question Status: Old
25) Higher costs of changing jobs will result in all of the following EXCEPT
A) individual firms' labor supply curves will slope upward.
B) some workers will stay in jobs even when they can earn more in an identical job with another
firm.
C) firms will lose some monopsony power.
D) quit rates will not be perfectly responsive to changes in wages.
Answer: C
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26) For which of these groups are the psychic costs the greatest obstacle to moving?
A) more educated people
B) people moving within a community
C) people with children
D) single people
Answer: C
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27) Suppose that by moving, one could increase one's income by 20%. Which of these events
will reduce the likelihood a person will move?
A) Wages in the person's profession, nationwide, fall dramatically.
B) The person becomes better educated.
C) Markets for the person's skill become less localized.
D) The person has no children, making a good fit less important.
Answer: A
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28) Allowing more immigration of unskilled workers will lower the real wages of skilled
workers if
A) unskilled workers are substitutes for skilled workers and the substitution effect dominates the
scale effect.
B) unskilled workers are complements to skilled workers.
C) Both A and B.
D) Neither A nor B.
Answer: A
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29) In the past, China limited the movement of workers from rural to urban areas. When it got rid
of these limits, one would expect
A) urban wages to rise in order to attract rural workers.
B) rural wages to fall as workers leaving depress the rural area.
C) national output to rise as workers are better matched with employers.
D) national output to fall due to higher total mobility costs.
Answer: C
Question Status: Old
30) Which of the following would decrease the mobility of workers within a nation?
A) laws making it more costly for employers to fire workers
B) laws requiring a mandatory waiting period before persons moving into a community qualify
for welfare benefits
C) an increase in the percent of jobs that are unionized
D) all of the above
Answer: D
Question Status: Old
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31) Suppose the United States erected a wall on its border with Mexico that increased the cost of
illegally immigrating to the United States. The effect of the wall would likely be to
A) increase the educational level of Mexicans immigrating to the United States.
B) decrease the educational level of Mexicans illegally immigrating to the United States.
C) increase the wages of illegal immigrants in the United States, which in turn would likely
increase the number of illegal immigrants.
D) decrease the wages of illegal immigrants.
Answer: A
Question Status: Revised
32) Suppose there is a large increase in immigrants from Romania into the United States. Native
workers in the United States would be better off when they are
A) Gross substitutes with Romanian workers.
B) Gross complements with Romanian workers.
C) Not affected by the "output effect" caused by the new Romanian workers.
D) Complements, but not gross complements, with Romanian workers.
Answer: B
Question Status: Old
33) City X has a large fraction of illegal immigrants; its native high school dropouts earn $17 an
hour. City Y has a small fraction of illegal immigrants; its native high school dropouts earn $18
an hour. This suggests that illegal immigrants have a small effect on drop-out wages. Which of
the following, if true and present, would suggest the true negative effect of illegal immigrants on
dropout wages is much larger?
A) Illegal immigrants tend to locate in cities with lots of low-wage jobs.
B) Illegal immigrants and high school dropouts are gross complements.
C) Falling wages induces a capital inflow into a city.
D) A large fraction of illegal immigrants in a city causes native high-school drop outs to move
out of the city and move where there are fewer illegal immigrants.
Answer: D
Question Status: Old
34) Suppose women have higher quit rates than men. Which of the following (if true) would
NOT explain why? (Note: in fact, after controlling for the relevant factors, women's quit rate is
the same as men.)
A) Women workers get less firm-specific training.
B) Women are more educated than men.
C) Women invest in human capital that is of use to many employers.
D) Married women traditionally have changed employers when their husband got promoted and
move to another city.
Answer: B
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35) Health insurance and pension plans that are not portable between companies
A) increase job mobility as more workers change jobs to find the best health and pension plans.
B) cause quit rates to be higher than is socially useful.
C) increase the willingness of the company to pay for the training of its workers.
D) make the economy more flexible by making job matches that best adapt to changing
conditions.
Answer: C
Question Status: Old
36) When Jeremy looks at the monetary costs and benefits of moving, he found that he would be
on net $50,000 better off by moving. He decides to stay where he is and not move. Which of the
following could explain this behavior?
A) He has a longer time horizon than suggested by the discount rate he used to calculate the
present value of the benefits of moving.
B) He believes that if the move does not work out, he could easily move back and be no worse
off.
C) He dislikes the climate in the city he planned to move to almost as much as his current city's
climate.
D) He places a high psychic cost on moving.
Answer: D
Question Status: Revised
37) An economist assumes while educated persons have lower informational costs to moving,
younger adults have lower psychic costs of moving. Which of the following observations (if
true) would support this assumption?
A) Among people with the same education, we observe younger persons moving only if there is
a large wage gain from moving.
B) Among people of the same age, we observe less educated persons moving only if there is a
large wage gain from moving.
C) Both A and B support the assumption.
D) Neither A nor B support the assumption.
Answer: B
Question Status: Old
38) One model of moving assumes that a family will move when the present value of the wage
gains summed over the two spouses exceeds the full cost of moving. Which of the following
observations (if true) would give the most support to this model?
A) The higher the observed wage gain of one spouse, the lower is the likely wage gain of the
other spouse.
B) The higher the observed wage gain of one spouse, the higher is the likely wage gain of the
other spouse.
C) The wage gain of one spouse is not related to the wage gain of the other spouse.
D) A married person and a single person are as equally likely to move when they have the same
wage gain from moving.
Answer: A
Question Status: Old
39) One immigrant to country X increased her annual wage from $8000 (in her home country) to
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$10,000 in Country X. There are no costs to moving. At the same time, one native worker saw
their wage fall from $15,000 to $10,000 because of the entry of the one immigrant into the labor
market. The native worker was producing $16,000 worth of goods and the immigrant added
another $11,000 worth of goods to total output. Both continue to work at $10,000. Given that
nothing else happens, which of the following statements is true? Country X (not counting the
immigrant) is
A) better off by $5000.
B) worse off by $5000.
C) better off by $1000.
D) worse off by $4000.
Answer: C
Question Status: Old
40) One immigrant to country X increases his wage from $13,000 (in their home country) to
$15,000. There are no costs to moving. A native worker was earning $15,000. However, the
immigrant replaces him and the native instead lives and works at home, which he values at
$15,000. Which of the following statements is true?
A) Country X (not counting the immigrant) is better off.
B) The native worker is worse off.
C) The immigrant could be taxed $1000 with the proceeds going to the native worker and the
employer so that everyone is better off (compared to no immigration).
D) The net benefit of this immigration to everyone (native worker, employer, immigrant) is zero.
Answer: C
Question Status: Old
41) Assuming the demand curve for labor does not shift, a given inflow of immigrants will lower
wages more when
A) the labor demand curve is more elastic.
B) the domestic labor supply curve is more elastic.
C) Both A and B will cause the wage to fall more.
D) Neither A nor B will cause the wage to fall more.
Answer: D
Question Status: Old
42) In an industry, a unit of output can be produced by 3 unskilled workers or by 1 skilled
worker. From this information, skilled and unskilled workers are
A) gross complements.
B) substitutes-in-production.
C) complements-in-production.
D) gross substitutes.
Answer: B
Question Status: Old
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43) Suppose all home values fall by $50,000, such that when a person moves, they have to take a
$50,000 loss as they had borrowed up to the full value of the house. However, assume movers
still have the credit to buy a new home. How will this event affect the mobility of homeowners
as compared to losing $50,000 in the stock market?
A) Mobility will be the same as either loss is a sunk cost.
B) The loss in home value will reduce the mobility of owners more because by not moving, they
can avoid facing the loss in their home's value.
C) The loss in home value will increase mobility because homes elsewhere are now $50,000
cheaper.
D) The loss in home value will increase mobility only if homes are expected to appreciate more
than stocks.
Answer: A
Question Status: Revised
44) Most college professors have tenure, which makes it very hard to fire them. What is the
effect of tenure on the academic job market?
A) It makes it more likely the wages of tenured professors will reflect their productivity.
B) It makes it more likely that professors will be well matched to the institutions they teach in.
C) It reduces the job mobility of tenured professors.
D) It increases the professors' willingness to invest in teaching.
Answer: C
Question Status: Revised
45) In a competitive industry, it takes a fixed ratio of one skilled worker and two unskilled
workers to produce a unit of output. If the immigration of unskilled workers lowers the wage of
unskilled workers, it will likely
A) increase the demand for skilled workers due to the scale effect.
B) increase the demand for skilled workers due to the substitution effect.
C) decrease the wage but increase the employment of domestic unskilled workers.
D) All of the above will occur.
Answer: A
Question Status: Old
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46) What is the human capital view of mobility? Write out the Present Value of Net Benefits
formula and use it in answering the question.
Answer: Human capital theory views mobility as an investment that is expected to raise the rate
of return on one's human capital stock. In this framework one incurs costs from moving (both
monetary and psychic) in the near term in order to enjoy a stream of benefits from the move over
time. This idea is captured by the Present Value of Net Benefits formula,
PVNB =
-C
The formula specifies C as the cost of moving, which is incurred in the present. C reflects the
direct monetary costs associated with moving as well as the psychic costs such as leaving family,
friends, neighborhood, schools, and so forth. The first part of the formula reflects the discounted
stream of benefits from moving. The benefits of moving, such as better paying work, more
satisfying work, and so forth, accrue in the future and over time. Because the benefits accrue in
the future, they must be discounted for comparison with the cost of moving. According to
human capital theory, moves will be undertaken when the PVNB > 0. This equality is more
likely to be satisfied the larger is B, the smaller is C, the smaller the discount rate (r), and the
longer the time horizon (T) over which the costs of moving are recouped.
Question Status: New
47) Other factors held constant, middle aged workers (ages 35-44) are more likely to migrate
than workers in other age categories. True, false, or uncertain? Explain the basis of your choice.
Answer: False. Younger workers are the most likely age group to migrate. U.S. Census data
show that 9 percent of workers in their late twenties moved to another region in the U.S. or
another country altogether between 2005 and 2010. The corresponding figures for workers in
their late thirties and in their late forties were 6 percent and 3 percent respectively. These
patterns make sense because younger workers have a longer time horizon over which to recoup
the cost of a migratory investment. In addition, older workers have more firmly established ties
to their current location, implying higher psychic costs of moving for older workers.
Question Status: New
48) How does earnings distribution help predict which skill groups within a sending country are
most likely to emigrate from the country?
Answer: In countries that have relatively equal or compressed earnings distributions, the returns
from human capital investments are low. Hence skilled workers from such countries have the
most to gain by moving to another country where the rate of return on their human capital stock
will be higher. In the United States, therefore, we would expect the composition of migrants
from developed countries with relatively equal income distributions (for example, northern
European countries) to be skewed toward skilled professionals. On the other hand, in countries
where the earnings distribution is very unequal, less skilled workers may be blocked from
making human capital investments in their own country and may, as a consequence, have a lot to
gain by migrating. We would therefore predict that, if the earnings distribution is highly unequal
in the sending country, as is often the case in developing economies, then the composition of
migrants from such a country will be more heavily skewed toward low skill workers.
Question Status: New
49) How does illegal immigration to the United States occur? What are the dimensions of the
illegal immigrant population in the United States?
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Answer: There are two ways an individual can enter the United States illegally. One source of
illegal immigration are individuals who overstay non-immigrant visas (visitors or students). The
other category of illegal immigration consists of those who simply enter the country illegally in
the first place by walking across a border (usually the U.S.-Mexico border) or by passing through
an entry station with falsified documents. The illegal immigrant population peaked at 12 million
in 2007 and is currently estimated at 11.5 million. Most illegal immigrants (60 percent) come
from Mexico because the countries share a long, porous border and because of the comparatively
high per capita income in the United States.
Question Status: New
50) A friend claims that "If the United States prevents illegal immigrants from obtaining jobs,
then that will create an equivalent number of jobs for deserving Americans." Evaluate the
friend's claim with demand/supply analysis.
Answer: The basis of the answer here should reflect the discussion on pp. 341-343 of the text
(12th edition). In essence, if x jobs held by illegal immigrants are eliminated, that creates a
shortage of workers that drives the market wage up. As the wage rises, more Americans
(domestic supply) are willing to work but employers curtail demand. Without illegal immigrant
labor the equilibrium wage is higher, but the net increase in employment of Americans is only a
fraction of x (with the size of the fraction depending on both the elasticity of domestic supply
and the elasticity of labor demand).
Question Status: New
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51) Suppose that an influx of relatively unskilled immigrant labor occurs. What is the effect of
the influx of immigrant labor on the labor market for more skilled native workers?
Answer: The influx of immigrant labor shifts the supply curve of unskilled labor to the right,
reducing the equilibrium wage rate for unskilled workers as a whole. The effect on the labor
market for more skilled types of native labor therefore depends on the size of the substitution
effect and the scale effect exerted by the drop in the unskilled wage rate. To the extent that less
skilled immigrants and more skilled natives are substitutes in production, the influx of immigrant
labor creates an adverse substitution effect for employment of natives. On the other hand, the
influx of immigrant labor and the drop in the unskilled wage spurs positive scale effects for
employment of native workers via both the increase in consumer demand from an expanding
population and the direct scale effect in production caused by the decrease in the price of a factor
of production. Native workers that hold jobs for which it is very difficult to substitute immigrant
workers for native workers will therefore experience the greatest benefit. For these workers, we
would expect a rightward shift in labor demand, leading to increased employment and a higher
wage rate. For those native workers that hold jobs for which greater substitution possibilities
exist, the influx of immigrant labor could reduce the demand for skilled native labor, leading to a
reduction in employment and wage rate for these workers. The analysis suggests that
immigration will benefit some types of native workers, but may have an adverse impact on labor
market outcomes for other types of native workers. Some empirical evidence on the latter issue,
however, suggests that the effect on wages of workers with a high school education or less have
been small if not negligible, suggesting that, even for the most substitutable natives, the scale
effects of immigration approximately balance the adverse substitution effect of immigration.
Question Status: New
52) Overall, the gains due to illegal immigration most likely exceed the losses imposed by illegal
immigration. Explain why.
Answer: Illegal immigrants come to the United States to work and therefore increase U.S. GDP.
In addition, though illegal immigrants may have occasion to use emergency room services and
their children may receive public education, illegal immigrants are generally ineligible for most
government programs such as Social Security, unemployment insurance, welfare, and food
stamps. Finally, illegal immigrants likely pay much more in taxes than they collect in benefits.
Empirical evidence suggests that 75 percent of illegal immigrants had income tax withheld from
their paycheck. In addition, Social Security payroll tax is paid both by illegal immigrants and by
their employers, even though illegal workers are ineligible from ever collecting Social Security
benefits. Moreover, illegal immigrants must pay sales taxes on purchases and property taxes on
housing (typically rolled into the rent that must be paid for the housing).
Question Status: New
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53) "Quit rates tend to increase with firm size." True, false, or uncertain? Explain your
reasoning.
Answer: False. Employee quit rates tend to decrease as firm size increases. One explanation for
this relationship is that larger firms utilize internal labor markets to select and screen workers for
difficult to observe attributes such as motivation, reliability, and initiative. These attributes are
valuable in the generally complex and interdependent production processes of large firms. The
use of an internal labor market to identify such characteristics in workers is an investment by the
firm. If a worker quits despite the investment the firm has made, the firm loses its investment in
that worker, which is costly from the firm's point of view. In order to forestall quits it is argued,
larger firms pay a higher wage (an efficiency wage) other things equal. From the worker's point
of view, the higher wage reduces the potential gain to mobility and thus reduces the likelihood
that a worker will quit.
Question Status: New
54) How does the quit rate behave over the business cycle?
Answer: The quit rate moves in a pro-cyclical fashion. That is to say, the quit rate is high when
the economy is expanding and the unemployment rate is falling. When the economy is
expanding, job opportunities are abundant and wages increase. As a consequence, the expected
payoff to leaving one job for another is higher, other things equal, at the top of the business
cycle. On the other hand, the quit rate decreases as the economy weakens at the bottom of the
business cycle. When times are bad there are relatively few attractive job opportunities and
wages and wage growth tend to be depressed. Under such circumstances, the expected payoff to
quitting for another job is much lower if not negligible and workers are much more likely to stay
in their current jobs.
Question Status: New
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55) Suppose you have data for two groups of immigrants that are alike in age and educational
status but who differ in that one group voluntarily immigrated (refer to them as economic
immigrants) while individuals in the other group are political refugees that fled their home
country and are unable to return. Draw a graph that plots earnings on the vertical axis against
years in country on the horizontal axis for each group. (Note that your graph will be like an
age/earnings profile graph except that time in country rather than worker age (which is controlled
for here) is on the horizontal axis.) Explain why the profiles look as you have drawn them.
Answer: This question is based on the Empirical Study at the end of the chapter. The refugee
profile should have a lower initial intercept and a steeper slope than the profile of the economic
immigrants. The refugee profile should have a lower initial intercept because economic
immigrants have moved for economic reasons in the first place and therefore we'd expect the pull
of the receiving country in terms of pay to be strong for this group, other things equal. Refugees,
on the other hand, have moved involuntarily and therefore have done less if any advance
planning to locate and find a good job match. The refugee profile should be more steeply sloped,
however, because refugees have no choice but to assimilate in the receiving country. As a
consequence, refugees have the incentive to accumulate human capital (language skills,
citizenship, etc.) in the new country at a greater rate than do economic immigrants who have the
option of returning to the home country if things don't work out in the new country. If refugees
do accumulate human capital at a faster rate than economic immigrants, than the wages of
refugees will increase at a faster rate. The study cited in the text found that refugee wages were 6
percent lower at outset than those of economic immigrants, while by the end of an ensuing 10year period refugee wages ended up 20 percent higher than wages paid to the economic
immigrant group.
Question Status: New
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