Question

Labor Productivity and Economic Growth outlined the logic of how increased productivity is associated with increased wages. Detail a situation where this is not the case and explain why it is not.

Answer 1

Generally, increase in the labour productivity results in increased wages. Also, increase in the worker productivity causes the standard of living to rise. This is beacaus, when workers produce more goods, then their wages will increase. As a result, they will have more of disposable income with them.

But there can be a situation where in the labour productivity might reduce the wages of workers. With an increase in the worker's productivity, workers are able to produce more number of goods. This increase the output n an economy. As a result, supply of goods increases. This will induce sellers to lower their prices. This will lead to the reduction in the wages of workers.