Labor Productivity

Exercises

Questions and Exercises

1. Real wages in the U.S. generally grew more during the 1960's than in the 1970's. You can see that by looking at the far-right column of Table B-47.-- Hours and earnings in private nonagricultural industries (Economic Report of the President). In which decade (the 1960's or the 1970's) do you think that Labor Productivity grew faster in the U.S? Briefly explain your reasoning, and then plot Labor Productivity from the Economagic website. Were the productivity data consistent with your explanation?

2. More productive workers tend to earn higher income, and economies that experience productivity gains also benefit from improving material standards of living. Global income inequality has been increasing since 1960. How can economic development help raise Labor Productivity in the more impoverished areas of the world, such as sub-Saharan Africa? What are the elements required for improving Labor Productivity?

3. Read the article by Kevin Stiroh of the Federal Reserve Bank of New York, entitled " New and Old Economics in the "New Economy" at http://www.ny.frb.org/rmaghome/economist/stiroh/ks_new2.pdf. Note that this is a PDF file, and you will need the Adobe Acrobat reader on your computer to access this article. Describe the distinguishing characteristics of the so-called "new economy". Does the new economy feature higher or lower productivity growth rates, and why? Take a position on the new economy debate and write a one paragraph essay defending your position.

4. Notice on the diagrams and data page that labor productivity tends to rise at the very end of recessions, and thus serves as a leading economic indicator of economic recoveries. Why do you think that labor productivity serves as a leading economic indicator of recovery, and how is that related to the hiring decisions of employers at the end of recessions?

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