Living Standards
Which of the following factors is the primary driver of workers' standards of living?
Correct Answer
As explained by a wide array of economists, labor productivity, or the amount of goods and services that workers produce in an hour, is the primary driver of workers' standards of living. Contrary to certain politicians, U.S. average labor productivity and hourly worker compensation have risen at roughly the same pace for 7 decades. The overall productivity of each nation also drives the compensation of low-income workers, and this is partly why McDonald's workers in the U.S. have six times more real purchasing power than in Latin America. The idea that consumer spending causes prosperity is based on a misunderstanding of Keynesian economics, which posits that governments can stimulate the economy by borrowing money and giving it to people to spend. However, even economists who adhere to this theory admit the boost is temporary and comes at a long-term cost. In the words of Ph.D. economist Mark Skousen, "consumer spending is the effect, not the cause, of a productive healthy economy."