Question

Suppose labor productivity is $110,000 per worker in 2015. Calculate the value of labor productivity in 2035 (20 years later) if:

Instructions: Enter your responses rounded to the closest $100.

a. Productivity continues to grow by 2.6 percent per year. U.S labor productivity in 2035 would be $_ per worker.

b. Productivity falls to 2.0 percent per year (the average productivity growth between 1970 and 2009). U.S. labor productivity in 2035 would be $_ per worker.

c. How much lager would labor productivity per worker be in 2035 with the higher growth rate compared to the lower growth rate.

Answer 1

Future value = Present value*(1+Growth rate)^number of years

a.Productivity in 2035 = 110,000(1+2.6%)^20

= $183,797.63

i.e. $183,800

b.Productivity in 2035 = 110,000*(1+2%)^20

= $163,454.21

i.e. $163,500

c.Difference = $20,300 per worker