Question

1. Explain what is productivity and what is the historical relationship between productivity and the real value of the minimum wage
2. What has been the historical pattern of real wage growth from 1975 to now for the bottom 90% of workers vs the top 10% of workers?

Answer 1

Productivity is measure of efficiency of a factor of production. The more efficient a factor of production, higher the productivity.

In other words, productivity of a factor of production is increase in total output due to use of an additional unit of a factor of production.

Historical relationship between productivity and the real value of the minimum wage has been directly proportional to each other. What that means is that real wages have risen with increase in productivity of factors of production, such as labor.

The historical pattern of real wage growth from 1975 to now for the bottom 90% of workers vs the top 10% of workers is starkly different. On one hand wages of top 10% of workers has risen significantly. whereas real wages of bottom 90% has hardly increased by 8%.

We can say that the wages of top 10% has increased exponentially whereas wages of the bottom 90% has stagnated. This is the reason of increasing income inequality in the US.

Government must bring policy changes in order to reduce income inequality and ensure that the real income of the bottom 90% of the labor force increases alongwith increase in their productivity.