Question

1 .Recently, Shane started his graduate position in the Australian public sector and his starting annual salary is $60,000, while his dad’s starting salary for similar position 28 years ago was $20,000. Shane is seen bragging to his friends that he is earning three times more than his dad did 28 years ago. Is Shane’s claim valid? Explain your answer. 2.b. According to the Tasmanian Chamber of Commerce and Industry’s 2018 report, labour productivity in Tasmania is 22% below national average. What is ‘labour productivity’, and what measures could the Tasmanian government undertake to improve labour productivity? c. Following the COVID-19 pandemic, many developing countries are worried about rising inflation, despite slower economic growth. If demand for goods and services are expected to fall, what could be driving the inflation? Explain your answer.

Answer 1

1.

No it is not valid. An employee's salary is fixed by taking into inflation apart from many other requirements such as relevant skill set, etc. But the significant difference between the salaries of Shane and his dad suggests the inflation in wages owing to restore the purchasing power at every period of time. So, 28 years ago the prices of goods and services were low compared to current scenario and the salary of $20,000 would've sufficed back then, without compromising on any purchase which Shane could make today with the $60,000 he has earned.

Therefore the comparison made is not valid in the first place unless you take into account the inflation rates and calculate the salary of Shane's dad adjusted to current inflation rates.

2.

Labor productivity is the number of goods/services which can be produced by the workers in a given amount of time. It is output generated per unit time, and is an important measure for productivity in a nation.

Some of the ways to increase productivity are :

• Provide incentives for the labors. This encourages them to finish off a task in lesser time.
• The right mix of capital should be utilized: Machinery and Human capital. When you increasingly rely on laborers for output, they ought be less productive. Instead the government can establish machineries which make some of their work easier thus increasing productivity.
• Increase the human capital. The hiring of more skillful employees can further reduce the burden on the workforce and increase the productivity.

c.

Inflation in this case is caused due to cost push inflation. As we know, at the wake of this pandemic, the manufacturing industries have been stopped and in some cases operate with minimal workforce. This means that the price of raw materials increase due to decrease in supply and a moderate demand. When a producer buys these raw materials than usual, the final product he produces ought to be priced higher than usual if he wants to maintain some profit. That's the reason why despite slower economic growth, inflation in prices occurs due to the raise in the prices of manufacturing a product

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