AS Micro Multiple Choice: What will increase productivity

A multiple choice question might ask for the most likely of four options to raise labour productivity

Labour productivity is a measure of output per worker employed or output per hour worked

So we are looking for options that are most likely to increase the efficiency of workers in an industry or market

Consider the following four answer options

• A/ An increase in market demand
• B/ A fall in wages in the industry
• C/ An increase in the number of firms in the industry
• D/ An increase in capital investment in the industry

The correct answer is D - a higher level of capital investment

Working through:

A could be right because if market demand is increasing, then workers will be used more intensively and the amount of spare capacity will be falling

B is incorrect because lower wages are likely to damage worker morale and affect the productivity of workers whose pay is linked directly to how productive they are

C - the arrival of new firms into an industry can make it more competitive and could, indirectly, increase productivity of labour because of the challenge of staying competitive against new rivals. That said the link between competition and productivity is indirect.

The best answer is

D - an increase in capital investment such as improved tools, faster and more advanced computer technology and new purpose-built factories ought to have a direct, positive effect on labour productivity albeit with a time lag for people to be trained to use the new technology / equipment.

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