A new productivity breakthrough in computer technology is announced;as a result,the marginal product of labour will double next year.What happens to current employment and the real wage rate?
A)Both employment and the real wage rate would increase.
B)Both employment and the real wage rate would decrease.
C)Employment would increase and the real wage would decrease.
D)Employment would decrease and the real wage would increase.

Question

Quizplus · Accepted Answer

Since the marginal product of labor is expected to double, firms will not need as many workers to produce the same amount of output. As a result, employment will decrease. However, the increase in productivity means that each worker is able to produce more output, so the demand for labor will still exist, just at a lower level. This will put upward pressure on the real wage rate. Therefore, employment would decrease and the real wage rate would increase.

A New Productivity Breakthrough in Computer Technology Is Announced;as a Result,the