Economics 381
Spring 2002
D. Maki
FINAL EXAMINATION

Instructions:  Answer any four of the following six questions.  Questions are equally weighted.  This is a closed book examination.  Total time allowed:  3 hours.

1.  Governments in most countries heavily subsidize university education (students do not bear the full cost of their education).  While there may be good reasons for this, there are also some dangers in it.  Using human capital theory, explain what these dangers are.  Is there an optimal degree of subsidy?  Explain.

2.  Define economic assimilation of immigrants in the context of a human capital earnings function.  Outline some of the empirical difficulties encountered in estimating earnings assimilation.  How can evidence on assimilation patterns be used to evaluate the impact of immigration policy?

3.  Explain how the so-called "Oaxaca decomposition" is used in the determination of discrimination against females in the labour market.  If the unexplained portion of the differential is zero, does that mean there is no discrimination?  Explain.  What difference does it make if a set of dummy variables for "occupation" is included in the equations?

4.  Discuss the pros and cons of efficiency wages as opposed to deferred compensation as ways to deter shirking.  Is there an efficient level of efficiency wages?  Explain.  Is there an optimal degree of deferral to deferred compensation?  Again, explain.

5.  Are implicit contracts a cause of unemployment, or a cure for it?  Explain.  What would be the advantages and disadvantages of removing unemployment insurance as a governmentally provided program, and instead passing a law that employers must provide such insurance privately?

6.  Evaluate the following three (unrelated) statements about Phillips curves.
(a)  "If COLA clauses were universal, even the short-run Phillips curve would be vertical".
(b)  "Rising productivity means it takes less workers to produce a given amount of output.  Hence a sudden increase in productivity will shift the Phillips curve to the right".
(c)  "Hysteresis exists when short-run shocks have permanent effects, so the concept of a natural unemployment rate becomes irrelevant".