Question

A.What is the labour productivity and how does it relate to long run economic growth?

B. Assuming that the legal system is already efficient at enforcing property rights and contracts what two factors can increases labour productivity?

C.Based on your answer to questions A and B in the medium to long term would it be efficient for the government to increase expenditure on the university sector (assuming the money will be spent on teaching and research)?

also show diagrams

Answer 1

A.What is Labor productivity and how does it relate to long run economic growth?

What is Labor Productivity ?

Labor productivity is a measure of the hourly output o a countries economy. Generally it refers to the amount of hourly GDP or gross domestic product which refers to the final value of goods and services produced in the economy.

Labor productivity is calculated by dividing the total final output of a country by the total number of labor hours that are spent.

How does it relate to Long Run Economic Growth?

It is widely understood, that to increase the long run economic growth of a country, it is very important to increase the overall labor productivity. If two countries were compared side by side and the labor of one country was capable of producing more goods and services on an average than the other, it would indicate that the overall economic growth in the country would be significantly higher.

Since Economic growth of countries is measured by the Final GDP it produces, and labor productivity is one of the key factors which determines the same, it is important to know, that higher labor productivity refers to long term economic growth for any economy respectively.

B. Assuming that the legal system is already efficient at enforcing property rights and contracts what two factors can increases labor productivity?

Considering that the legal system of the country is already in place and is efficient in nature other factors which can increase labor productivity over a period of time is as explained:-

• Level of Education

The most important factor which increases labor productivity is the Level of Education that gets imparted in the country respectively. It is a known fact, that higher levels of education increases the overall productivity of the human resources respectively. In countries such as China, India and others, government initiatives on education has largely caused massive changes in the level of productivity and got these countries on the path of success respectively.

• Deregulation of Market Places:-

A key factor to labor productivity is the level of competition in the market place. Increased competition results in a subsequent increase in labor productivity also. This happens because the demand for labor force rises and so does the need for training the current labor force which in turn leads to increased labor productivity.

Graphs and Specifics:-

An increase in the labor productivity increases the demand for labor and shoots up the wage rates. This happens as a result of increased economic activity in any nation. Graphically it can be explained as follows:-

.Based on your answer to questions A and B in the medium to long term would it be efficient for the government to increase expenditure on the university sector (assuming the money will be spent on teaching and research)?

Indeed, increased investment by the government in terms of the expenditure in Universities results in rapid development of the labor force, increases their skills and competencies and in the long and medium run results in increased employee contribution and overall labor productivity. As described above, an increase in expenditure results in more people having better skills of work which causes them to produce significantly more in lesser time period.

Countries such as China and India have largely been transformed because of their increased expenditure on education and transformation of the labor force respectively.

Please feel free to ask your doubts in the comments section if any.