Question : 17.5   Personnel Economics 1) Personnel economics is A) the study of the : 1387998

17.5   Personnel Economics

1) Personnel economics is

A) the study of the factors that determine wage rates.

B) the study of how workers are affected by tax law changes.

C) the application of economic analyses to human resource issues.

D) the application of economic analysis to the hiring decision.

2) A successful compensation scheme

A) must pay workers with comparable skills a comparable wage.

B) must induce effort from workers and ensure that both employer and employees benefit.

C) must enable workers to enjoy a certain standard of living and must enable employers to earn a normal rate of return.

D) must allow employees to participate in a firm’s profits.

3) Which of the following is a reason why some firms do not use commission pay?

A) It gives workers incentive to produce more.

B) It increases firm profits.

C) It is difficult to measure the output and attribute output to a particular worker.

D) The best workers stay and less productive workers leave.

4) Which of the following statements about commission systems of compensation is false?

A) They increase the risk to workers because sometimes output declines for reasons not connected to the worker’s effort.

B) During sluggish periods, an employer’s payroll expenses will decline along with sales.

C) If workers are paid on the basis of the number of units produced, they may become less concerned about quality.

D) The lack of income stability will induce the more productive workers to leave in search of more secure employment.

5) Despite evidence that companies will find it more profitable to use a commission system of compensation rather than a salary system, many companies continue to pay their workers salaries. Which of the following is one reason why firms choose a salary system?

A) Most business owners and managers are not trained economists; therefore, they are unaware of the research that shows a commission system is more profitable than a salary system.

B) Firms often use salary systems to overcome their principal-agent problems.

C) Firms that have salary systems do not have to use compensating differentials to attract employees to do hazardous jobs.

D) Many workers dislike risk and prefer to be paid a salary rather than to be paid by commission.

Figure 17-6

Figure 17-6 shows two different compensation schemes for the Safelite Glass Corporation, an installer of auto glass windshields. Under Scheme I, the firm pays a consistent wage of $80 per day based on an 8-hour workday. Qmin represents the cut-off point under the hourly-wage system: if a worker installed fewer than Qmin windshields, the worker got fired. Scheme II represents a piece-rate scheme with an earnings floor: no worker would get less than $80 per day (for an 8-hour workday) and would have to produce at least Qmin. For any output level beyond Q* the worker earned an additional $20 for each unit produced.

6) Refer to Figure 17-6.  Under Scheme I,

A) workers compete with each other to see who can produce beyond Qmin in the shortest possible time.

B) workers have no incentive to produce beyond Qmin.

C) workers signal their productivity to the firm by consistently producing above Qmin.

D) the incentive to increase productivity depends on where Qmin is set; if it is at a very high level, then workers will rise to the challenge for fear of losing their jobs.

7) Refer to Figure 17-6.  Which of the following statements about Scheme II is false?

A) It is likely to draw highly productive workers who see the opportunity to increase their wages.

B) It could discourage less productive workers and induce them to leave the firm.

C) It allows workers to increase their daily wage without penalizing those who are content with their daily wage.

D) It is more risky for senior employees.

8) Refer to Figure 17-6.  Suppose Qmin = 2 windshields and Q* = 5 windshields. Under Scheme II, a worker has to install Q* windshields before she earns an additional $20 per windshield installed. What is a potential problem with this scheme?

A) Workers might be more concerned with increasing output beyond Q* and less concerned with the quality of their work.

B) Any increase in output between Qmin and Q* benefits the employer only.

C) It violates labor laws because workers are not compensated for output between Qmin and Q*.

D) Workers have no incentive to produce output to between Qmin and Q*.

9) The application of economic analysis to human resources issues is called

A) resource economics.

B) personnel economics.

C) human economics.

D) labor economics.

10) Mel’s House of Cars is an automobile dealership that sells both new and used cars. Two other dealerships located nearer Mel’s pay their salespeople a straight salary—they receive no commission for each car they sell. Mel has decided to pay all of his salespeople a commission on all car sales. Which of the following is most likely to occur as a result of Mel’s decision?

A) Mel will have difficulty finding salespeople. Research by labor economists has found that most employees prefer the security of a salary to the uncertainty of being paid based on how much revenue they generate for their employers.

B) Mel will experience a principal-agent problem. Some of his salespeople will tend to shirk because they will not be paid if they sell no cars, regardless of how hard they work.

C) Mel will be able to hire some of the most productive salespeople who work for the other two dealerships.

D) Mel risks violation of federal law that regulates firms’ compensation policies.