Question

A worker in Bangladesh can earn $1 per day making cotton cloth on a handloom. A worker in Canada can earn $100 per day making cotton cloth with a mechanical loom. What accounts for the difference in wages?

Select one:

a. Canadian textile workers belong to a union.

b. Bangladesh has a low-wage policy to make its textile industry more competitive in world markets.

c. There is little demand for cotton cloth in Bangladesh and great demand in Canada.

d. Labour is more productive making cotton cloth with a mechanical loom than with a hand

Answer 1

Option D is correct

The wage differential can result from a variety of reason and one of the reason is the differences in productivity. We know that labours are paid the value of their marginal product and this value of the marginal product includes the marginal product of labour. If two workers have different marginal product, then the worker with greater marginal product will be paid more than the other. It is also true that there can be policy differences in two countries or there is a union in one country. However a more valid reason is the difference in marginal product