Review Questions

1.
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Describe the main features of the hiring process. What are some of the practical problems that confront workers and employers at the point of hiring?
2.
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A generic feature of the Roy model is that the average earnings of those workers who are employed in certain occupations and industries will exceed the average earnings of those employed in others. Given this, should the government encourage workers to switch to these higher paying jobs?
3.
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What is the economic similarity between a job and a dam site?
4.
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Assuming workers know their abilities but employers do not, what is to stop a high-ability worker from just announcing this fact to employers?
5.
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Briefly explain how education can act as a signal of ability.
6.
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What is the difference between a separating equilibrium and a pooling equilibrium?
7.
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What is meant by screening and self-selection?
8.
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What are the principal differences between signaling and screening models?
9.
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Under what circumstances is it reasonable to suppose that both workers and employers are symmetrically ignorant about workers' abilities?
10.
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In the risky-worker hypothesis, what is meant by an option value and why is it that risky workers tend to have better option values than safe workers?

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