The Wall Street Journal Weekly Quiz
Covering front-page articles from July 18 – 22, 2005
Professor Guide with Summaries Summer 2005 Issue #8
Developed by: Scott R. Homan Ph.D., Purdue University
Questions 1 – 12 from The First Section, Section A
In Latin America, Rich-Poor Chasm Stifles Growth
By DAVID LUHNOW and JOHN LYONS
July18,2005;PageA1
http://online.wsj.com/article/0,,SB112164363441787882,00.html
TEHUACÁN, Mexico -- Sergio Martinez, a tinsmith who supported his family of seven on the equivalent of a few dollars a day, saved every peso he could to pay for a private-school education for his daughter, Griselda. As one of the few poor students in town to finish high school, Ms. Martinez dreamed of becoming an interior designer. But all she could land was a secretarial job. Now 34 years old and unmarried, she earns just $70 a week and wonders whether her father's sacrifice was in vain. "It seems like there's a limit to how far up a poor person can go," Ms. Martinez says, echoing a complaint heard throughout Latin America, where the gap between rich and poor is among the steepest in the world and the hardest to span. While researchers have in recent years described limits to class mobility in the U.S. and decried the growing wage gap among Americans, things are much worse just south of the border. The son of a blue-collar worker in Mexico has only a 10% chance of making the jump to a white-collar job, compared with a 30% chance in the U.S., according to a 2001 study by the Inter-American Development Bank.
Because of an abundance of natural resources and a large indigenous population, Latin American nations grew up relying on raw materials, cheap manual labor to exploit them and low government taxation. The system concentrated land ownership and wealth in a few hands, deprived governments of money to spend on education and offered little incentive for the elite to invest in human capital or technology. Latin America has also historically relied on monopolies and franchises, leaving few opportunities for entrepreneurs to advance through hard work and innovation. The American dream never became the Latin American dream. Latin American culture tends to emphasize advancement through personal relationships rather than merit. Corporate executives and tortilla grinders alike hand their jobs down to the next generation in their families. Education gets less emphasis. Only a few years after its founding in the early 1600s, the Massachusetts Bay Colony made primary-school education mandatory. It took Brazil until the mid-1960s. Today, seven out of 10 Latin Americans drop out of high school, almost double the rate of industrialized nations and some Asian countries like South Korea. The lack of economic and social mobility in Latin America is one reason why the region has developed slowly. In 1980, Mexico's economy was nearly four times the size of South Korea's. Last week, the World Bank's ranking of the world's biggest economies placed South Korea 11th, one place ahead of Mexico. "By hampering mobility, you are reducing the overall competitiveness of the country, putting you at a serious disadvantage competing in international markets," says Miguel Székely, an Oxford-trained economist who is Mexico's deputy social-development minister.
1. The son of a blue-collar worker in Mexico has only a ______chance of making the jump to a white-collar job, compared with a 30% chance in the U.S., according to a 2001 study by the Inter-American Development Bank.
a. 10 % Correct
b. 20 %
c. 30 %
d. 25 %
2. Today, ______out of 10 Latin Americans drop out of high school, almost double the rate of industrialized nations and some Asian countries like South Korea.
a. 3
b. 5
c. 7 Correct
d. 9
Manufacturing Sector Displays Unexpected Vigor
By JESSICA E. VASCELLARO and JON E. HILSENRATH
July18,2005;PageA1
http://online.wsj.com/article/0,,SB112142912632186758,00.html
The import-heavy shelves of Home Depot, Wal-Mart and Best Buy paint a grim picture of the health of the U.S. industrial sector, which doesn't appear to be producing much of what American consumers are buying. But that isn't the full picture. While employment keeps declining at American factories, they are cranking out more products than ever, and they are running closer to capacity than they have in half a decade. In the past year, the growth in output of high-tech equipment, machinery and aerospace products has outpaced overall economic growth. Even production of motor vehicles -- despite the problems of Ford Motor Co. and General Motors Corp. -- is growing at a healthy pace, expanding by 8.5% in the past 12 months as foreign auto makers have increased output in the U.S. to win market share. Production of some consumer products -- like food and toiletries -- is also rising. "Contrary to the view out there that American manufacturing is dead or dying, [production] is growing at a pretty good clip," says Joseph Carson, director of global economic research with Alliance Capital Management LP in New York.
It is a counterintuitive view, but the point was underscored Friday with the monthly report by the Federal Reserve on the state of the manufacturing sector. Industrial production rose 0.9% in June, the largest increase in nearly a year and a half. Rising utility output was an important part of the increase, but so was manufacturing. It rose 0.4% from the month before and now looks to be back on a growth track after a slump in March and April led some economists to worry that an inventory glut could send the sector into another tailspin. "Manufacturers are putting the second quarter's inventory adjustment behind them and are gearing up for increased demand," Nigel Gault, an economist at Global Insight, an economics research firm in Lexington, Mass., said in an analysis of the Fed's report. When businesses build up too much inventory, they usually reduce output to work off existing stock. Two larger trends are at play in the increases. The first is continued productivity gains in the manufacturing sector, which means factories are producing more products with fewer workers. The other is a growing global economy, which allows U.S. producers to expand production even as upstart factories in places like China and Mexico build up market share. The Fed's index of manufacturing production, which measures the volume of output, now stands 3% above levels seen at the height of the last economic boom. In June, production of business equipment -- computers, industrial machinery, tractors, airplanes and other products used by businesses, rather than consumers -- was up 8.2% from a year earlier, while output of computer and electronic parts rose 15.6%. Information-processing and defense and aerospace equipment also registered double-digit growth rates. Meanwhile, factories, mines and utilities operated at 80% of their capacity in June. It was the highest level since December 2000, although still below rates seen during much of the 1980s and 1990s.
Some companies say they are feeling the lift. Boeing Co.'s orders this year already exceed the total for 2004, thanks in part to orders from overseas. Procter & Gamble Co. says demand for soap, baby-care products and diapers is so strong that it has had to add to its facilities in Pennsylvania and Missouri. Campbell Soup Co. said last week that it plans to build an $80 million factory in Everett, Wash. As a result of the move, the company expects its StockPot business, which makes fresh refrigerated soups and sauces for the food-service industry, to boost capacity by 50%. And amid worries that U.S. manufacturers can't compete with Asian rivals, more of those rivals are looking to produce in America. Hyundai Motor Co., based in South Korea, in May opened a two-million-square-foot plant in Montgomery, Ala., that has the capacity to produce 300,000 vehicles a year. To be sure, manufacturing isn't expected to reclaim its position as the key locomotive in the U.S. economy, which is increasingly services-oriented. Just as the agricultural sector did during the industrial revolution, manufacturing is shrinking as a percentage of overall economic output. In 2004, manufacturing was 12.7% of gross domestic product, down from 13.2% in 2001 and more than 20% in 1980. While some companies are boosting production in the U.S., many also are moving some production to low-wage countries. The sector also faces numerous challenges domestically. Manufacturing profits could reach new highs this year, but at $106 billion in 2004, they were still shy of their 1998 levels, according to the Bureau of Economic Analysis.
3. The monthly report by the Federal Reserve on the state of the manufacturing sector indicated industrial production ______in June.
a. fell 0.9%
b. rose 0.9% Correct
c. fell 10.9%
d. rose 10.9%
4. Factories, mines and utilities operated at ______of their capacity in June.
a. 20 %
b. 50 %
c. 70 %
d. 80 % Correct
Retiree Runaround: Trying to Challenge A Benefits Decision
By ELLEN E. SCHULTZ
July19,2005;PageA1
http://online.wsj.com/article/0,,SB112173902957789105,00.html
Fred Loewy wanted to leave his wife financially secure when he died, so he delayed his retirement at Motorola Inc. till he was almost 73. Not only would the delay mean bigger Social Security checks someday, he figured, but he'd earn a bigger pension from his employer too. But when his company pension didn't turn out to be as large as he expected, Mr. Loewy learned a fact of retiree life he hadn't reckoned on: the complexity, sometimes exasperating, of trying to appeal a benefits calculation. Mr. Loewy, now 80, embarked on an epic quest through the deep thickets of pension law and administration. Starting in 1998, he spent years sending letters and making phone calls that Motorola generally didn't respond to. Motorola says it cooperated exhaustively with Mr. Loewy but it didn't dispute most details of his account in an eventual court case. Mr. Loewy ran into a giant Catch-22: Federal law says any retiree who disagrees with a company's benefits decision has a right both to appeal it and to see the benefit-plan documents it is based on. But not knowing what provisions lie behind a decision, retirees don't know what documents to ask for. Essentially, they're at the mercy of former employers to tell them which relevant materials exist and to provide access to those materials. Then there is the federally prescribed series of steps in any appeal, each of which allows months for the parties to act and thus extends the process. Litigation is a rare and distant option. Few retirees can afford it, few lawyers are interested in taking such cases, and no suit can be filed until all interim appeal steps have passed. All this while, a statute of limitations is ticking, and the aging retiree often is running out of time and energy. Retirees are increasingly being thwarted by this Kafkaesque process, advocates for seniors say. Employers "are not giving people the information or documents they need to check their benefits calculations," says John Hotz, deputy director of the Pension Rights Center. His group, along with others such as AARP, are urging the federal government to fix the problem, by enforcing the current disclosure rules and adding new ones. Mr. Loewy worked for 35 years at a Motorola lab in Scottsdale, Ariz., testing the reliability of computer chips used in Minuteman guided missiles and aircraft radios. He started drawing his company pension at 71, as the law then required, even as he remained employed. The day after he finally retired in January 1998, he checked the math that his pension was based on and concluded Motorola had made a mistake. It had to do with Social Security. Motorola subtracts from a monthly pension payment half the amount of a retiree's monthly Social Security check. This is legal, and about half of companies that pay pensions do it. But Mr. Loewy figured Motorola was subtracting too much. His Social Security, which he also delayed taking until the latest possible age of 70, was larger than it would have been if he'd started it at 65. A "delayed retirement credit" had increased the checks, as it does for all who postpone benefits. Mr. Loewy's issue: Motorola was subtracting from his pension not merely half of the Social Security benefit he was eligible for at 65 -- as the plan allowed -- but also half the delayed-retirement credit. For this to be legal, the pension plan must specifically provide for it. Motorola's didn't, as far as he could tell from the summary of plan rules he was given when he retired. He figured his $1,100 monthly pension ought to be slightly higher as a result, and wrote to the administrator saying why he thought so. If a retiree challenges a benefits ruling and makes a written request for documents, the plan administrator must respond with an explanation of its position within 30 days, under the federal benefits law known as Erisa.
5. If a worker delays taking Social Security payments until the latest possible age of 70, the payments will be ______than they would have been if started at 65.
a. twice as large
b. three times as large
c. smaller
d. larger Correct
6. If a retiree challenges a benefits ruling and makes a written request for documents, the plan administrator ______with an explanation of its position within 30 days, under the federal benefits law known as Erisa.
a. must respond Correct
b. may respond
c. must email a response
d. must FedEX a response
Bush Taps Roberts For Supreme Court
By JESS BRAVIN and JEANNE CUMMINGS
July20,2005;PageA1
http://online.wsj.com/article/0,,SB112178116226989469,00.html
WASHINGTON -- President Bush nominated federal appeals-court judge John G. Roberts Jr. to the Supreme Court, choosing a candidate with a long-enough history in conservative legal circles to delight Republicans and an affable demeanor and short paper trail that could make him hard for liberals to attack. At age 50, Judge Roberts was one of the youngest people on the president's short list of candidates, an important attribute for officials hoping for a justice who will use his lifetime appointment to reshape American law for a generation to come. The White House rushed to make an announcement this week to begin the lengthy Senate confirmation process in time for Judge Roberts to join the high court for its next term in October. Mr. Bush's business backers were cheered by the appointment of Judge Roberts, who worked as a business lawyer for the white-shoe Washington law firm of Hogan & Hartson LLP before becoming a judge two years ago. In that practice, among other things, he defended Toyota Motor Corp. in a workers-disability case. Judge Roberts's name also drew enthusiasm from social conservatives who are hoping that he will side with them more frequently than did Justice Sandra Day O'Connor, a Ronald Reagan appointee who disappointed the right with rulings favoring abortion rights and opposing displays on government property of the religious symbols like the Ten Commandments. Justice O'Connor's retirement, announced July 1, created the opening Judge Roberts hopes to fill. It is social issues such as abortion that are expected to generate the most controversy over the nomination in the Senate, where solid Democratic opposition could delay, or even prevent, a vote on the candidate if the party holds together.