Question

3 researchers at Cambrige looked at 5,000 firms in Englans and found that, in terms of value added per worker, US multinational corperations were 23% more productive than the average, while English companies were 11% less productive than average. they also noted that US companies in England use 40% more info-technology (IT) Capital per worker than the average firm, and that they get more productivity out of the same amount of IT.

provide 2 seperate reasons, using economic terms, why the US owned firms in England have greater value added per worker than English companies

Answer 1

The two reasons are below

1. The US firms are there in England because it made sense to have a plant there. Which means that there were some productivity and cost gains to be there in the market. This means that many a times, the US company is doing a task in England which has higher efficiency in England than in the US- a location advantage in a specific case. This will automatically result in workers having higher productivity cause that's why the firm is there in the first place.
2. The second reason is given in the question itself- the US of IT. The use of information technology increases the factor productivity of labor and hence results in higher efficiency.