Econ1102 Final Tutorial
2
Econ1102 Final Tutorial Q6. (i) The definition of economic growth is the improvement of living standards in the long run. The average labour productivity is the total gross domestic product for one time period divided by the number of workers in a labour; i.e. essentially GDP per worker. Living standards is closely linked to the level of real wages earned by workers. To increase GDP as a means of improving living standards, the government has to focus on increasing the average labour productivity as labourers can use this higher labour productivity to demand for higher wages and as a result, improve their living standards. Another reason why average labour productivity is a key factor is that it is the only element in the calculation of GDP (Production approach) that can grow indefinitely. The total production of an economy is the number of hours worked multiplied by labour productivity. Since there is a limited amount of hours (24hrs per day) and labour share (full employment), the driving force in increasing GDP is labour productivity. The equation Y POP = Y N x N POP show that real GDP per person is determined by average labour productivity multiplied by the share of employed persons, and holds the argument above true. (ii) The Japanese government should focus on increasing labour productivity as a mean of increase GDP and as a result improve living standards. A policy that may counteract this is to offer extensive training and education programs to increase the skills of labourers to increase labour productivity. Another option may be to increase the retirement age so that labourers are legally bound to stay in the workforce, thus continue to contribute in increasing labour productivity. The government may also reduce the superannuation contribution rate to give incentives for workers to stay in the workforce longer to save up for retirement. Other policy options is to manage demands to control the output gap. This would involve major economic reforms such as focusing on the service sector and manufacture of high-tech goods. These are the sectors that have most potential to increase GDP (minimising output gap) and highest competitive advantage. (iii) There are six main factors that can influence productivity. Human Capital consists of the skills, training, education and talents of workers. Those with higher stock of human capital are generally more productive. Physical Capitals are the tools and equipment that workers
description
Econ1102 Final Tutorial
Transcript of Econ1102 Final Tutorial
Econ1102 Final Tutorial
Q6. (i) The definition of economic growth is the improvement of living standards in the long run. The average labour productivity is the total gross domestic product for one time period divided by the number of workers in a labour; i.e. essentially GDP per worker. Living standards is closely linked to the level of real wages earned by workers. To increase GDP as a means of improving living standards, the government has to focus on increasing the average labour productivity as labourers can use this higher labour productivity to demand for higher wages and as a result, improve their living standards.
Another reason why average labour productivity is a key factor is that it is the only element in the calculation of GDP (Production approach) that can grow indefinitely. The total production of an economy is the number of hours worked multiplied by labour productivity. Since there is a limited amount of hours (24hrs per day) and labour share (full employment), the driving force in increasing GDP is labour productivity. The equation YPOP
=YNxNPOP
show that real GDP per person is determined by average labour productivity multiplied
by the share of employed persons, and holds the argument above true.
(ii) The Japanese government should focus on increasing labour productivity as a mean of increase GDP and as a result improve living standards. A policy that may counteract this is to offer extensive training and education programs to increase the skills of labourers to increase labour productivity. Another option may be to increase the retirement age so that labourers are legally bound to stay in the workforce, thus continue to contribute in increasing labour productivity. The government may also reduce the superannuation contribution rate to give incentives for workers to stay in the workforce longer to save up for retirement. Other policy options is to manage demands to control the output gap. This would involve major economic reforms such as focusing on the service sector and manufacture of high-tech goods. These are the sectors that have most potential to increase GDP (minimising output gap) and highest competitive advantage.
(iii) There are six main factors that can influence productivity. Human Capital consists of the skills, training, education and talents of workers. Those with higher stock of human capital are generally more productive. Physical Capitals are the tools and equipment that workers use to perform their tasks. Higher quality and quantity of physical capital can improve productivity. Other factors include Land and natural resources, technological advancements, entrepreneurship and management and political and legal environment.
(iv) Japan’s main issue of experiencing lower level of productivity is its shifting age structure. Statistics have shown that working age population has declined from 67.2% in 2003 to 61.9% in 2013. Furthermore, there has been a decrease in aggregate population in addition to an aging population. The US may also have higher level of human capital as US universities are ranked among the highest in the world. Furthermore, Japan has smaller geographical land and hence less natural resource supply.
Policies that may improve Japan’s productivity are introduction of more education and training programs to improve human capital qualities. Since Japan is one of the world leading manufacturer and innovators of high-technological products, heavy financing into these sectors may see improvement in productivity. This can lead to higher-quality physical capital which may have the potential to increase economic productivity.
