Data shows that labor productivity growth has been trending upward since the 197
ID: 1093749 • Letter: D
Question
Data shows that labor productivity growth has been trending upward since the 1970's. During the same time period however, overall real wages have increased only slightly, with real wages for many low- skilled workers actually decreasing. Read the application "Technical Change and Wage Inequality" (posted below) and explain why you think real wages have failed to match the increase in productivity over the same time period. Be sure to back up all of your opinions with theory, including graphs where applicable.
Technical Change and Wage Inequality Because many families have little income other than wage income, trends in real wages have important implications for the standard of living of a large segment of the society. During the first twenty-five years after World War II, real wages in the United States grew strongly. Since about 1970, however, there have been two disturbing trends: (1) overall real wage growth has slowed considerably; and (2) real wages have become more unequal, with wages of the best-paid workers continuing to rise but wages of the worst-paid workers actually falling substantially in real terms.Explanation / Answer
Economic activity in the euro area is expanding at a solid pace and conditions are in place for the ongoing expansion to continue at sustained rates. The improved growth performance of the euro area economy reflects the positive influence of the policies being pursued and the reforms that have been implemented. It is essential to preserve the favourable conditions that are fostering sustained growth and to step up the efforts that can enhance the dynamism and growth potential of the euro area economy.
Monetary policy has been contributing decisively to fostering sustainable growth by having established an environment of price stability and by ensuring that medium to longer-term inflation expectations remain solidly anchored at levels consistent with price stability. And this is what our policy will continue to do. The ECB
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