Answer ALL Questions

1a. Using the theory of labour demand, explain how the firm determines the optimal amount of
labour inputs.

1b. Explain how the use of signalling as a hiring standard leads to a separating equilibrium. (You
may use the example of education signalling to answer this question.)

1c. In the study by Lazear (2000) “Performance Pay and Productivity,” explain the key
propositions that Lazear wants to test. Look at the table in Appendix 1 reproduced at the end of
this Assignment. Using this table, briefly explain whether this evidence suggests that any of the
propositions are borne out.

2a. Outline the model explaining ‘on-the-job training.’ In your answer discuss the distinction
between General and Firm-Specific human capital.

2b. With regards to the on-the-job training model, explain what the ‘Hold-Up problem’ is and
how it might be resolved.

2c. What are the main implications of the on-the-job training model?

3a. In the study by Bertrand et al (2009) “Dynamics of the Gender Gap for Young Professionals
in the Corporate and Financial Sectors,” explain: (i) the key question the authors address; (ii)
what kind of data the authors use; (iii) what are the key outcomes they will measure; and (iv)
what are the main independent variables, including the key control variables.

3b. Table 6 from Bertrand et al (2009) is reproduced at the end of this Assignment. Write down
the regression model estimated in column (1). Write down the regression model estimated in
column (2). How do you interpret the results in columns (1) and (2)?