True or False: Explain your answer If wages in nation 1 are lower than wages in...

True or False: Explain your answer

If wages in nation 1 are lower than wages in nation 2, but labor productivity is much higher in nation 2, labor costs are not necessarily higher in nation 2.

Solutions

Expert Solution

True.
The labour productivity is positively related to the wage rates. The equilibrium in the labour market occurred when the marginal revenue product of labour equal to the wage rate. Firms will employ more labours if the labour productivity increased. The demand for labour increased with increasing production rate. The labour supply and labour demand in the market determine the wage rate. This increasing production will reduce the price level. This fall in price level will increase the demand for goods and services in the market the workers who works with high level of income. High marginal productivity labour market will reduce the cost f labour.
The concept of marginal productivity having a diminishing nature. Thus the fall in marginal productivity will leads to the fall in wage rate also. This will leads to high level unemployment in the economy. Thus the lower wage rate may drives out several workers from the market also. If the labour supply is low, the production will also fall down and it will affect the national production also.

Rahul Sunny answered 1 year ago

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