Question

of capital. Payments to capital could take the form of dividend payments to the shareholders in a company or rent le The Femaining third is pald to the owners paid to the owners of real estate So if you multiply output () in the private business sector by 2/3, you get total employee compensation from that the order (so you multiply 2/3 times Q/ HW) gives the same result (average compensation 2/3 x [Q/ HW]) sector. If you then divide it by hours worked (HW), you hav e a measure of average hourly compensation. Switching However, Q/ HW is labor productivity. So 2/3 times labor produ per hour worked. ctivity gives you a measure of average compensation This tells you that when labor productivity grows, average hourly compensation grows b amount. y the same proportional Suppose that in some country real output in the private business sector was $300 billion in one year and $309 bilion n the next year. (All dollar amounts are in constant dollars, which means that they are measured in terms of the purchasing power of a single year, such as 2005.) Between the two years, total output increased by roughly3 4% 1% , 3% const Suppose that in this economy the fraction of total output paid to labor in the United States. When output was $300constant dollars), total compensation (in billions of constant dollars) would have been $190 that is paid to labor is the same as the fraction If total output goes up by 3%, the percentage increase in total employee compensation between the two years is 3% Suppose that total hours worked stayed the same in these two years. The percentage increase in labor productivity between the two years is 3% 7 8 9 1/2 6 3 /4 2

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Answer 1