Question

5. Asymmetric information and labor markets Megan is the manager of a factory. Workers at the factory are assigned to one of two tasks, one of which requires skilled labor and one of which requires unskilled labor. Because skilled workers earn a higher wage than unskilled workers, everyone who applies for a job says they're skilled. Megan's challenge is to figure out who is actually a skilled worker and who is an unskilled worker. Suppose that Megan would like to use the economic concept of screening to separate out worker types. Which of the following scenarios illustrates this concept? Skilled workers pay to take a certification course to demonstrate their ability Megan implements a test to determine whether applicants are skilled or not. Megan voluntarily pays all workers a higher wage in hopes of attracting and retaining more productive workers. Suppose, instead, the manager considers paying efficiency wages to increase the factory's profitability True or False Efficiency wages are higher than average wages that are intended to reduce the chances that workers engage in non-productive behavior that might jeopardize their high-paying job. True False

Answer 1

Correct option is: Megan implements a test to determine whether applicants are skilled or not.

This will help Megan to figure out who is actually skilled worker and who is an unskilled worker. This problem that Megan is facing is due to asymmetric information as he is not informed about the fact that which workers are skilled & which are unskilled, so, in order to distinguish between skilled and unskilled workers, Megan should implement a test which will help him to deal with the situation & gain proper information.

Correct option is: True

Efficiency wage theory says that there is a direct relationship between the productivity of employees & their pay. If employees are paid higher than average wages i.e., more than the wages determined by supply & demand, then they tend to be more productive & they are less likely to engage in non productive behavior that might jeopardize their high-paying job. Efficiency wages encourages employees to work hard & be more productive.