Question

G according to the neoclassical theory of distribution, the real wage earned by any worker equals that worker's marginal productivity. let's use this insight to examine the incomes of two groups of workers: farmers and barbers.
a. over the past century, the productivity of farmers has risen substantially because of technological progress. according to the neo-classical theory, what should have happened to their real wage?
b. in what units is the real wage discussed in part (a) measured?
c. over the same period, the productivity of barbers has remained constant. what should have happened to their real wage?
d. in what units is the real wage in part (c) measured?
e. suppose workers can move freely between being farmers and being barbers. what does this mobility imply for the wages of farmers and barbers?

Answer 1

A. According to the neoclassical theory, technical progress that increases the marginal product of farmers causes their real wage to rise. B. The real wage in (a) is measured in terms of farm goods. That is, if the nominal wage is in dollars, then the real wage is W/PF, where PF is the dollar price of farm goods. C. If the marginal productivity of barbers is unchanged, the their real wage is unchaged. D. The real wage in (c) is measured in terms of haircuts. That is, if the nominal wage is in dollars, then the real wage is W/PH, where PH is the dollar price of a hair-cut. E. If workers can move freely between being farmers and being barbers, then they must be paid the same wage W in each sector. F. If the nominal wage W is the same in both sectors, but the real wage in terms of farm goods is greater than the real wage in terms of haircuts, then the price of haircuts must have risen relative to the price of farm goods.