In the labour market, an increase in labour productivity ________ the real wage rate and ________ the level of employment.

Question

Quizplus · Accepted Answer

An increase in labour productivity means that workers are able to produce more output per unit of time. This leads to an increase in the demand for labour, as firms require more workers to produce the increased output. As a result, the real wage rate (the wage rate adjusted for inflation) increases due to the higher demand for labour. At the same time, the increase in productivity also means that firms can produce the same level of output with fewer workers, which could lead to a decrease in the level of employment in the short run. However, in the long run, the increase in productivity can lead to higher levels of economic growth, which could eventually lead to higher employment levels.

In the Labour Market, an Increase in Labour Productivity ________