Chapter 8, Problem 1.1P

To determine

Measurement of labor productivity and its effect on the U.S. standard of living.

Explanation of Solution

Labor productivity can be measured as a ratio of the total output to the number of man-hours to produce the output. Labor is the most commonly used resource to measure productivity. Labor productivity is calculated as the total output divided by the hours of labor employed to produce the output. Labor accounts for approximately 70% of total production costs. When an economy builds more capital per worker, labor productivity increases. This causes the standard of living to increase. Along with labor productivity, technology too has an effect on U.S. standard of living. As jobs become more advanced technologically, the ability to achieve results become quicker which leads to increased production of goods and services, thereby resulting in an increase in productivity. The per-worker production function shows the relationship between the amount of capital per worker in the economy and the output per worker. As capital per worker increases, the output per worker also increases but at a decreasing rate. If the population is continuously increasing, there is a requirement for the economy to produce more goods and services simply to maintain its standard of living. If output grows faster than the population, the standard of living increases.

Economics Concept Introduction

Introduction:

Labor productivity measures the hourly output of a country’s economy. Labor productivity is the rate of output per worker per unit of time. Productivity helps us understand how much each worker produces per hour compared to what each worker is earning to perform the job.