Quiz 13: Earnings, Productivity, and the Job Market


The main reason for differences in wages between persons is the differences in productivity. Higher the productivity, higher is the wages and lower the productivity; lower will be the wages. In addition to productivity there are other factors which cause difference in wages. These are: 1) Differences in work preferences; 2) Differences in working conditions; 3) Differences in the nature of the job; 4) Existence of discrimination in employment; and 5) Imperfect mobility of labor. In some occupations wages are higher than others because the amount of investment required to be eligible for high-paying occupations is high, that is, the amount of investment in human capital is high. These high human capital investments lead to higher productivity and consequently higher wages. This is in contrast to the low-paying occupations. These occupations are low paying because the education attained and consequently the output produced (or productivity) is low. Wage differences influences the allocation of resources. Generally, the resources move from low wage industry to high wage industry.

The higher real wages are the result of high productivity of the average American workers compared to other countries. High productivity is reflected in the form of higher wages because in a competitive labor market wages paid are equal to the marginal revenue productivity of the workers. Yes , to an extent labors in America are responsible for the higher wages as they invest hugely in the human capital in the form of acquiring higher education and better skills. However, in general the higher productivity and consequently, higher wages of the American workers due to the fact that they have superior tools and technologies to work with. Superior technologies often result in higher productivity.

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