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    Real wages

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    During the economic expansion of the late 1990's, wages increased significantly for all types of workers. One possible explanation for this (other than favorable economic conditions which have increased the demand for labor) is that the productivity of labor has increased more rapidly over this time period. How is the productivity of labor connected to the real wage? Why should you, as a future worker, be concerned about the downward trend in labor productivity increases that have been observed since the early 1970s?

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    Real wages are directly related to the marginal productivity of labor. According to microeconomic analysis, the wage (w) that firms are willing to pay to their workers would be:

    w = price * MPL
    (where price is the price of the goodsand MPL is the marginal productivity of labor)

    That ...

    Solution Summary

    Real wages are examined.