We just demonstrated how increases in productivity do not necessarily result in a rise in unemployme

We just demonstrated how increases in productivity do not necessarily result in a rise in unemployme

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We just demonstrated how increases in productivity do not necessarily result in a rise in  unemployment. But what is the other side of this coin? That is, what are the effects of  lagging productivity? In general, a country that lags in productivity will have both lower  wages and lower living standards than a country with higher productivity.  This assumption is based on the idea that all economies trade on the open market. If a  country that lags in productivity produces a good to sell on the international market, it  must price the good at the same level that more productive countries. In this case, the  only way for the lagging country to produce the good at a low price is to pay labor a low  wage. Thus, if labor receives a low wage, the workers are unable to provide or enjoy a  high standard of living.  Let's work this out through an example. Say that there is an international market for 
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This note was uploaded on 12/13/2011 for the course ECO 1310 taught by Professor Staff during the Fall '10 term at Texas State.

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