If overall labor productivity is increasing at an average rate of 3 percent per year but by only
1 percent per year in the shoe manufacturing industry,then under the Kennedy-Johnson guidelines,wages of shoe workers should increase by ________ percent per year; prices of
Shoes should ________.
A) 1; not change
B) 1; increase by 1 percent per year
C) 3; increase by 2 percent per year
D) 3; not change
E) 3; decrease by 2 percent per year

Question

Quizplus · Accepted Answer

The Kennedy-Johnson guidelines state that wages should increase at the same rate as overall labor productivity, while prices should increase at a rate equal to the difference between the overall labor productivity growth rate and the industry-specific labor productivity growth rate. In this case, overall labor productivity is increasing at an average rate of 3 percent per year, while labor productivity in the shoe manufacturing industry is increasing at an average rate of only 1 percent per year. Therefore, wages of shoe workers should increase by 3 percent per year, and prices of shoes should increase by 2 percent per year.

If Overall Labor Productivity Is Increasing at an Average Rate