Question

Explain why labor productivity is important but not the only key to improvement in living standards.

Answer 1

Labor productivity is important determinant of growth and living standards of country. Rise in labor productivities improves the living standard of people. Labor productivities are higher in developing countries, so the living the standards of people in developed countries.

Although increase in productivities of labor increases growth rate, but it not necessary that living standard of average people will witness rise as well. Presence of income inequalities and huge expenditure on defense would hinder such positive relationship between the productivity and living standard.