Surprise! Product prices have been falling for decades!

Sep 13 2009

Surprise! Product prices have been falling for decades!

Published by Steve Latter at 11:27 pm under CPI,Economic Growth,GDP,Income distribution,Inflation,Living wages,Productivity,Standard of Living

I wonder how many people in countries like Switzerland, Brazil, Canada, Russia, and China, and the United States would be surprised to learn that prices of products and services in their countries have become much less expensive over the years.

Say what? You must be crazy, you say! Prices are rising way too fast!

Yes, most citizens see their purchases as becoming more expensive when, in actuality, things are becoming less expensive. Of course, the paradox is that although nominal prices (the actual price tag) are, in fact, increasing, nominal income (the average wage or salary) has been growing faster. This is a topic that in economics is called “real income” or a measurement that compares a nation’s income growth relative to the growth in prices that the same income buys.

Let’s take some specific facts for the United States:
In the United States real median household income grew from $41,318 to $50,811 from 1970 through 2006 for a total percentage gain of 23% (source: Pew Research Center). Both of the aforementioned median household incomes are stated in 2008 or current dollars which makes the comparison valid. Median household income is an attempt to quantify the progress that the “middle American” family or typical family has made. So, in short, the median household in America can buy 23% more with their income today than they could in 1970. In other words, relative prices are lower to income.

If we look at the same United States income data over the same period for real average household income, there is real income growth of nearly 60%. The higher growth (60%) in real incomes for the average household versus the median (middle) growth rate (23%) is explained by the fact that much of the growth in United States’ real incomes has accrued disproportionately to the college educated & entrepreneurs driving up real income growth rates much faster for the average than the median or middle household. (Hint: continue your education!)

Now let’s get back to the main premise of the title of this blog and the opening assertion that prices are lower than ever. What we are really saying is that you have to benchmark price increases to income increases to really understand whether things are becoming more expensive. The vast majority of products & services are cheaper today in all nations than they have ever been before, which helps explain, excluding the effects of the current recession, why more citizens than ever before can afford to own their own houses, drive more and better cars, and are likely to have cable, cell phones, and computers. The reason we are led to believe differently is because we are victims of our own human nature, which often causes us to focus on the problem areas (rising prices) and not the benefits (incomes that are rising faster). Most citizens’ focus expands out to the last dollar of their incomes and they quickly notice those select products that are rising faster than others like health care, gasoline prices, and education! Hey, even gasoline prices are not at an all relative price high. If gasoline prices in the United States are restated for inflation, or set to comparable 2009 dollars, they are $2.60 per gallon today vs. $3.17 in 1981 and $3.50 in 1918!

Now, you may say to yourself that statistics can lie or mislead and you are sure in your gut that things are getting more expensive relatively. You can try to validate that incorrect “gut feeling” by examining whether your country’s middle class is enjoying less or more products and services. “Real income” really is just a measurement of the quantity and quality of products and services that you have. For example, the average American household has larger homes, more cars, more air conditioning, more gadgets, and better healthcare & prescription drugs than, say, 20 years ago.

But let’s end this blog with a concern. Although everything noted above is accurate, the pace of real income growth has been relatively slow over the last 10 years, especially for the middle class in the United States. Most of that growth in real income mentioned above has occurred up until this current decade. For the last 10 years, median family income growth in the U.S. has been very small and the average income growth has been higher but below the U.S. historical experience. There are many reasons for this slowdown in real income growth, but three big reasons are that

the U.S. has now had two recessions this decade (2001 and 2007-current, versus our historical average of only 1 per decade), and
energy and health care prices have risen much faster, and
foreign labor competition and technology advancement has kept the uneducated/unskilled U.S. workers real income relatively stagnant. More than ever before, a good education is the ticket to your economic future!

Discussion Questions:

Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?
How have trade and globalization contributed to rising real wages in America and Swizerland?
How have trade and globalization contributed to falling nominal wages in America and Switzerland?
How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?
What types of policies can government pursue to help raise the real wages of the nation’s workers?

About the author: Mr. Latter teaches various business courses at Paul VI Catholic High School in Fairfax, Virginia (USA) including AP Economics, Accounting, Marketing, and Personal Finance. Mr. Latter is a Certified Public Accountant (CPA) and former Chief Financial Officer with 10 years of high school business teaching experience. Prior to his career change to teaching in 2000, Mr. Latter spent 21 years in various auditing, accounting, and financial positions with Price Waterhouse, Sprint, and Teleglobe. Read more posts by this author

109678 responses so far2009-09-13+15%3A27%3A51Steve+Latter

109678 Responses2009-09-13+15%3A27%3A51Steve+Latter to “Surprise! Product prices have been falling for decades!”

# Won_Woo_Choion 14 Mar 2011 at 2:59 am

Discussion Questions:

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

Since the growth in real income is measured in terms of the average not the median, there would effectively be a real income growth.

2. How have trade and globalization contributed to rising real wages in America and Switzerland?

The ability of the firms to produce goods at lower costs allows them to lower the prices of their goods – therefore increasing the purchasing power of the people with the same money.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Globalization does not only bring lower prices, but it also bring foreign labor competition. Previously domestic jobs are now shipped overseas, leaving many unemployed.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

The improvements in technology make goods and services which were unavailable to the public accessible to the general population.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

The government can first of all lower taxes to lower the average price of goods. Another policy which the government can pursue is subsidization of certain products to lower the prices.

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# Sondos2on 14 Mar 2011 at 3:27 pm

• Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

“Real income”, as mentioned in this blog, is simply a measurement of the quantity and quality of goods and services that one possesses or that a household possesses. If average prices rise by 2% whilst average incomes rise by 3%, this implies that average incomes are rising much faster than average prices, and so more goods of better quality can be purchased by the consumers receiving the wages. This then would mean that ‘real income’ is also increased along with the rise in average wages since, adjusted to inflation, the incomes received, in average, have greater value, and can purchase more high quality goods as well as demand for them.

• How have trade and globalization contributed to rising real wages in America and Switzerland?

Trade and globalization have enabled multinational companies originating from America and Switzerland to establish their companies elsewhere where relatively cheaper foreign labour stimulates their production at lower production costs. This implies that more developed countries, as in the case of America and Switzerland are most likely to import the cheaper manufactured goods for consumption rather than produce them domestically. Given that these imported products are relatively cheaper (also due to the difference in exchange rates), consumers/ the labour receiving wages can buy a greater quantity of better quality products with their incomes, and thus their real incomes or wages increase (given that real income is simply a measurement of the quantity and quality of goods and services that one possesses or that a household possesses).

• How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Although the products imported may be cheaper, this comes at an opportunity cost. As mentioned in the previous question, American and Switzerland multinationals generally decide to produce elsewhere where they can employ a workforce at wages which are much lower than those imposed in their respective countries, in their economic benefit. Nonetheless, by moving from their countries to other countries with cheaper labour, they induce much unemployment in their countries: America and Switzerland. This unemployment may push the employed, as well as the unemployed to accept lower nominal wages so as to avoid being structurally unemployed (generally a long-term type of unemployment), thus leading to falling nominal wages.

• How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

When it comes down to health and education, improvements in technology inevitably trigger advancements in more efficient health care provision, research, and allocation as well as more effective health awareness projects. Technology also permits education to be more wide-ranged, allows the development of new skills in students, increases the student’s productivity, etc. This all leads to an increase in nominal wages since receptors of health information and beneficiaries of more efficient health provision and research need not pay much more to benefit from these advantages due to technological improvements. Likewise, education improvement by means of technology provides the benefitting students with better chances to occupy posts which offer better wages. This increase in nominal wages most probably leads to an increase in real wages. Moreover, the use of technology in any sectors of an economy in both developed and developing countries increases overall efficiency, productivity, thus stimulating profits, GDP, raising wages, which further stimulate consumption, leading to rising real wages.

• What types of policies can government pursue to help raise the real wages of the nation’s workers?

The government may choose to further subsidize merit goods such as health care and education, thus allowing consumers to save more of their incomes for other types of consumption, thereby raising their real wages.

The government may also choose to reduce taxes on nominal wages so that consumers may have more of their incomes left for consumption of goods, thus increasing their real wages.

Moreover, the government may consider establishing a minimum wage in the nation, which is constantly adjusted for inflation (a persistent increase in the general level of prices) so that when prices increase, then nominal wages and therefore real wages of the nation’s labour will also increase.

The government may also resort to other options. For example, imposing a combination of both supply-side and demand-side policies as well as deflationary fiscal (increase in taxes and lower government spending) and deflationary monetary policies (raise in interest and reduce the money supply) to reduce inflation. This will maintain an increase in the nation’s workforce’s wages and will therefore help raise the real wages, only if the rate of inflation is lower than the rate of the average increase in income. However, it’s not in the government’s favour to impose such policies, despite being quite effective, since it would displease the people/ the workforce which would lessen this government’s chances later, of being re-elected. Moreover, it would be very difficult for a government to reduce its spending as in the case of deflationary fiscal policies because of their commitment to the public. So it’s a rather hard decision.

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# Sondos2on 14 Mar 2011 at 3:28 pm

Won_Woo_Choi:

Another way of explaining the growth in real income is by the fact that the rate of growth in prices is slower than that in income, and so the income of the workforce has greater purchasing power, which then increases ‘real income’ if we define ‘real income’ as measurement of the quantity and quality of goods and services that one possesses or that a household possesses.

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# Frederico Carvalhoon 14 Mar 2011 at 5:01 pm

1.Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In this case the real income would rise, and this is beneficial to the average household. With the rise in real income, the average household is now able to purchase more products or invest in larger quantities. However we must be aware that this is the average household, it is possible that the median household has a rise, but not such a significant one

2.How have trade and globalization contributed to rising real wages in America and Swizerland?

The fact that workers have better work opportunities, and the fact that there is greater competition due to different education and knowledge about the outer world, workers can fight for higher wages, and move elsewhere if these specifications are not met. Nowadays a worker with a good background (educational) can pretty much live anywhere and be an asset to his/her company, thus the company would not want to lose out on a worker to a foreign competitor, which enables the worker to fight for themselves and still have it their way (in most cases).

3.How have trade and globalization contributed to falling nominal wages in America and Switzerland?

The company can use the foreign worker excuse to their advantage, and argue that a foreign worker with the same qualifications will work for lower wages. This argument may force the current employee into a submissive position where they would take the lower wages, rather than lose their job to someone from the outside that has the same qualifications.

4.How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

With regards to real wages: A worker who produces product 'x' at speed 'y' can be considered the average manual worker, everything is up to him to produce 'x' and he takes his time because it is hard to produce 'x' he earns an average pay check and the company is satisfied. On the other hand a worker with technological aid will produce'x' at speed 'y + 1' this worker is a much better worker, because at the end of the day he has produced a considerable more amount of 'x' than the average worker, the company likes this worker and so is afraid to lose him, or wants to reward him, thus they raise the income; they do this nominally, however making sure that the real income actually rises. This happens in both developed and developing nations.

With health and education, not only is the doctor's or teacher's work easier and better done, as it is also faster and perhaps more accessible. A health example is the defibrilator, opposed to manual CPR. And an education example of this is Online teaching, versus a student travelling to the school location.

5.What types of policies can government pursue to help raise the real wages of the nation’s workers?

They could invest in education and subsidies to harder workers, as mentioned in the article, education seems to be the key to success in the worker's world. Workers with better education will be aware that they can earn better wages than the common worker, seeing as they are above the average quality, this causes the foreigner effect and a rise in real wages; the problem however is that this is a long-term strategy, and perhaps a short-term strategy is what is most needed.

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# Frederico Carvalhoon 14 Mar 2011 at 5:15 pm

Response to Sondos:

I have to say that I agree with you in all points, it is good that we share equal thoughts on the importance of education, in gthe job world, and also how we both see that nominal income increases are the main factor in real income increases; although you do seems to be less keen on this last part than I do, I believe that our answers are quite similar.

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# Michael Mayeron 14 Mar 2011 at 7:36 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

The average income is rising faster than the average prices, so more products can be bought by consumers. The real income therefore rises because the incomes are at a higher value (or they can buy more things per dollar).

2. How have trade and globalization contributed to rising real wages in America and Switzerland? How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Companies in Switzerland have been able to increase their wages because America imports many goods from places like Sweden. The wages increase because the incomes for these companies increase. Nominal wages have increased because wages in general have increased.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Wages rise because things develop when technology improves. Things are made easier and people are able to do more, so wages increase. In other words, people use technology to perform jobs that provide higher pay grades than they could otherwise do.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Policies that increase demand and output of goods will eventually raise wages, because with company profit comes increased ability to raise wages. Also, a policy that assigns a minimum wage would obviously help raise wages in general.

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# Michael Mayeron 14 Mar 2011 at 7:39 pm

Response to Sondos:

You have a very clear understanding of everything, and I learned just as much from reading your responses as I did from reading the text. Your answers are thorough and thoughtful, and I cannot complain at all of any aspect of your answers whatsoever. So, thank you for answering so thoroughly! It really helped me. Please keep it up

-Michael

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# Mitchell_Broughtonon 14 Mar 2011 at 9:03 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In this case you essentially subtract percentages. 3%-2% = 1% thus equalling an increase in the real income. This means the average household is better off because everybody's income increased by 1% on average. This does not, however, mean that the median household is better off. It is still possible that the majority of this increase in real income was amongst people who are much higher than the median.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

With trade and globalization, people have more opportunities to go into careers of their choice, instead of having to settle on jobs that they are not as skilled at, and which they would make less money. Trade and globalization has also allowed the US and Swizerland to import less expensive goods instead of producing them themselves, allowing citizens to purchase more goods which is a measure of real income.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Trade and Globalization have allowed the US and Swizerland to employ foreigners. This increased competition for work has caused firms the ability to cheapen their wages, thus decreasing the nominal wages of the citizens.

4. How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology not only allow people greater access to jobs of their choice, but it makes firms more productive. Some of the extra money earned by firms goes towards the wage of its workers who benefit from this improved technology. By nature better technology will increase health because there will be more ways in which diseases can be cured, as well as new antibiotics, etc… Education will improve because students will have wider access to more information, as well as in improvement in teaching techniques. This improved education will further increase the wages of people in the future.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Since it seems as though education is the key to improving the real wages, the government could subsidize it, making it easier for people to pay for it. This would also keep more money in the consumers pockets, allowing them to purchase more goods thus increasing real wages.

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# Mitchell_Broughtonon 14 Mar 2011 at 9:15 pm

@Michael

Your answers are very neat and concise. I especially liked your answer to number 1, and your explanation as to why this would increase the household's real income.

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# Noah Flanikenon 15 Mar 2011 at 3:03 am

1)Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

If average incomes rise more than average prices in an economy, the real income is said to be growing at a faster rate. This means that people have greater purchasing power. They can keep buying the products, even though they have gone up in price, and buy some more products or have more money to save, invest, etc. In the end the average household should be better off since they have more income relative to the price of products.

2)How have trade and globalization contributed to rising real wages in America and Switzerland?

Trade and globalization have allowed America and Switzerland to import cheaper products thus decreasing the prices of products in their country and therefore increasing purchasing power. The US and Switzerland import cheaper products in two ways. The first is that they import cheaper products from foreign manufacturers producing at a cheaper rate and the second way is that they put up firms in these countries where they can find cheaper labor as seen with the Electrolux company in last weeks reading. They then bring back their products and sell them for cheaper.

3)How have trade and globalization contributed to falling nominal wages in America and Switzerland?

On the other hand trade and globalization have also contributed to falling nominal wages, which means less purchasing power. There are down sides to the scenarios I mentioned above. First of all foreigners are immigrating to America and Switzerland and are willing to work for less. This creates competition for jobs and since most Americans will not work for lower wages, they lose jobs. Higher unemployment and lower wages that firms can pay means the purchasing power of consumers is less.

4)How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology can have positive sides and negative sides to real wages. The positive side is that it means people can use technology to produce more and thus earn more money. For example in a country relying on agriculture, technology that makes harvests bigger and crops better tasting, the farmers can sell more and increase their wage. This applies to both developed and developing economies. A downside though is that some technologies make jobs easier and can make workers more replaceable. If a technology makes it so that a job is more easily learnt some workers might be less valuable and thus be unemployed or paid less. Sometimes technology can completely replace people such as in parts of a car factory. Also if the technology in a factory is changing people may need to be replaced by newer workers who know how to use the technology.

New technology can also make health care and education better. Improved education means people develop higher skills. For example, Apple’s new iPad is helping kids at my school learn mandarin by being able to draw the characters or play games based in mandarin. More educated people lead to better doctors and health care improves also.

5)What types of policies can government pursue to help raise the real wages of the nation’s workers?

Minimum wages are a great way of raising the real wages in a country. Simply by making firms pay their workers more means that real wages rise. Also subsidizing education will improve the skills that people have meaning they can take on higher paying jobs.

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# Noah Flanikenon 15 Mar 2011 at 3:09 am

@Michael Mayer

You mentioned that people are able to do more with technology so wages rise and I agree with you that this is sometimes the case. It seems like sometimes, though, technology, in being able to do more can actually make the person/worker less valuable. If the technology can do their job they may be payed less. What do you think?

Noah

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# Jaewan hongon 15 Mar 2011 at 3:57 am

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

If the average price rise by 2% a year and average incomes rise by 3% then, the average income is rising faster than the average price. This means that even though the price tag of products rose, people will not feel pressure because they have ability to purchase them in increased price because they earn more than before. The real income has risen so increased price will not be a burden to citizens.

2. How have trade and globalization contributed to rising real wages in America and Switzerland?

Basically trade and globalization made the market bigger. Many firms set up their branches in other countries and operated them in many parts in the world. Those firms hire people from the local area and pay tax to the local country. This basically leads to the economic development and stimulate economy. Therefore, workers have more opportunity to get a job and this will bring the rise in real wages. Furthermore, people will import cheap products from third country (like Chinese products) and sell back in cheap price in the country. Lower price and more income let real wages rise.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Hiring workers from the local area can lead the falling of nominal wages. To explain this, firms originally hired workers from their own country. But as market grows worldwide, firms set up factories where they can hire labours in cheap prices. This brings unemployment in their own country. Motorola built factories in China to produce phones aimed in Asian market. They do not longer produce phones for Asian market in USA so workers who worked at factories for Asian market became unemployed.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvement in technology brings the efficiency so people can work more efficiently and can use the left over time to do other things. Better technology leads to a better productivity

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Education is one of the best investments that government can do to make the nation richer and prosperous. Government may provide better educational systems or subsidize.

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# Jaewan hongon 15 Mar 2011 at 4:05 am

@Noah Flaniken

3. i agree that americans would not want to work at low wages and foreign workers will take the low wages works in America and Switzerland since there are many immigrants to those countries. But doesnt that mean Americans and Swiss are unemployeed. i think they work in a better conditions with a better wages. If they cant be hired in high wages jobs they would work at low wages job because they have to survive.

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# Deepa_Johnon 15 Mar 2011 at 4:14 pm

1.Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

If the average price rises by 2% a year but the average income rises by 3% then the real income is growing at a much faster rate. It is a good thing for the customers as they have a wider range of buying products even if the price has increased as their wages are at a higher rate.

2.How have trade and globalization contributed to rising real wages in America and Swizerland?

Globalization and trades help to get goods famous and across countries. Globalization minimizes a lot of things such as transportation price etc. American and Switzerland import inexpensive products. Due to this workers have more opportunities for work which means employed workers is equal to rise in real wages.

3.How have trade and globalization contributed to falling nominal wages in America and Switzerland?

When foreign companies employ workers from that specific country there is competition and loss for the local company as workers are more attracted to the foreign companies which allows the local company to lose their employees.

4.How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvement in technology leads to better facilities which lead to better concepts. The production efficiency in the host country increases. Technology can help in various sectors in a company. As technology has scopes and limitations some limitations is that sometimes technology cannot be too reliable for example if electricity is out then the technology cannot run which means if the firm is too reliable on technology then the firm will have to stop everything until electricity comes back. Technology is used in health and education. Technology is used in hospitals and schools for higher knowledge and more precise answers/ data. Technology can lead to unemployment as technology can take places of workers in the company.

5.What types of policies can government pursue to help raise the real wages of the nation’s workers?

By minimizing costs of necessary things like health, education etc the real ages can rise as people can have more money for them to buy basic needs.

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# Deepa_Johnon 15 Mar 2011 at 4:42 pm

@Jae:

Your answer are pretty clear and easy to understand.

Good Job!

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# Deniz Kapanogluon 15 Mar 2011 at 7:16 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In the case in which average prices rise by 2% a year, but average income increases by 3% a year, we can see that is real income is larger, and the average household would be better off in this scenario because of the fact that as years go by, they will be able to buy things at a lower income to price ratio than the year before, even if people will not be able to feel this change immediately as they will focus themselves on the idea that the prices are always growing one year after the other at a steady pace.

2. and 3. How have trade and globalization contributed to rising real wages in America and Switzerland? How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Globalization and trade are crucial factors which led nations such as Switzerland and America to have a rise in real wages because of the fact that labor for industries could be done at a lower price in third world emerging countries (for example China), and then sold at the same price back in the motherland, decreasing the amount of money that had to be invested for the product in order for it to be completed, and increasing the delta in profit made after the product was sold. The increase in real wages can be attributed to the fact that the people who were outsourced to foreign nations (managers of the company) in which globalization occurred were given a higher wage. But this also leads to a decrease of nominal wages, as the people that were needed to run the company once it was opened in the globalized nation would work at a lower wage, and thus would lead to a decrease of the wage per capita.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

The improvements in technology contribute to rising real wages in developed and developing countries as, with the implementation of machinery which can take the place of many workers, a company can reduce the personnel, but has to pay for a worker who has a certain "know-how" in using the machinery, which receives a larger wage. Education also is a contributing factor, as people which have a high degree of education will work for higher wages, suitable for their level of preparation. Health also contributes as it keeps the population always "available" to work by eliminating diseases.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

The policies that a government can implement are those of higher levels of education and healthcare. It can also increase the number of imports from foreign countries that offer products at a lower price.

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# Nabil Elbehrion 15 Mar 2011 at 10:27 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

3%-2% = 1% this equals an increase in real income. So the average household is better off by 1% increase income.

2. How have trade and globalization contributed to rising real wages in America and Switzerland?

Trade and globalization offer people chances to find suitable work instead of being forced to work at a place which pays less and is less suitable. Globalization and especially trade allow the US and Switzerland to import cheaper products which gives citizens the chance to purchase more goods and is a measure of real income.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Trade and Globalization have allowed the US and Switzerland to employ foreigners. This increased competition for work has caused firms the ability to cheapen their wages, thus decreasing the nominal wages of the citizens.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology give people better access to work and make firms more productive. On the other hand technology by its nature leaves many industries and job opportunities useless contributing to unemployment. Technology, basically does not make healthcare and education more available or easier to access but only improved (For example: in the advancement of drugs, treatments etc.). An explanation of this is the healthcare and education sectors of Norway and Ghana. Norway has better healthcare and education not because it has improved technology but because it can afford to offer it to everyone, the same goes to the case of Ghana where the Education and Health systems are lacking not because of a lack of technology but because of a lack of funding and infrastructure.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

A affordable or subsidized education system would be the most likely way to raise the real wages of the nation’s workers. People could work with higher pay and also there would be more money in the consumer’s wallet.

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# Nabil Elbehrion 15 Mar 2011 at 10:37 pm

@Mitchell_Broughton

Very well said. Concerning technology's effect on Health and Education, specifically education. Does technology Really make it better or just easier to access?

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# Jackson_Moteon 16 Mar 2011 at 4:23 am

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

The value of the real income rises 1 more percent than the rate of inflation does. The average household is better off in this situation. However, it is necessary to understand that the average or median household does not represent the whole of society. For example, the lower income households may only receive a 1 percent increase in real income therefore losing 1% to inflation.

2. How have trade and globalization contributed to rising real wages in America and Switzerland?

Switzerland is able to pay more in real wages because of a rise in real income along with inflation in the US. They are able to pay more to their workers due to globalization because the inflation rate is not the same in the US and Switzerland.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Globalization in addition to globalization has caused companies to be forced to lower their wages to combat inflation because their real income has decreased. Because their real income has decreased, they can only pay so much in wages.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Technology aids in increasing real wages because workers, using technology, can work more efficiently and get more done. Therefore, the company employing the worker have more revenue and overall real income to pay the worker with. In regards to health and education, technology improves these things thus increasing the real incomes of those involved in them.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Governments can pursue a policy of better healthcare and education which would raise the real incomes of workers over time.

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# Jackson_Moteon 16 Mar 2011 at 4:24 am

@Deepa

Wouldn't it make more sense to increase the quality of healthcare so that workers are able to work more and be more efficient therefore increasing revenue and real income instead of decreasing healthcare which would do the opposite?

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# Eleonora_Bisioon 16 Mar 2011 at 8:58 pm

Discussion Questions:

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

Inflation is bad because it can have various negative impacts on society. If the average price rises by 2% a year but the average income rises by 3% then the rate of real income will increase, however there can be an increase in the demand of products and a decrease in the supply of them because people may not feel to work anymore or to work less and therefore the surplus of aggregate demand will lead to an increase in the general level of inflation and eventually unemployment. However, inflation will raise prices and it may therefore equilibrate again the average between prices and incomes.

In the average household will worse off in such a scenario since increasing in income can cause inflation and therefore the advantages of having more money will result in more disadvantages that will be eventually caused by inflation such as negative effects on interest rate, international competitiveness and savings.

2. How have trade and globalization contributed to rising real wages in America and Switzerland?

Trade and globalization have greatly contributed in raising the real wages in America and Switzerland. Globalization may have increased the amount of technology in both countries therefore on one hand it may have raised the level of structural unemployment since people lacked the skills of working new technologies, but on the other hand trade may have opened the doors to more opportunities and possibilities of working therefore reducing the level of unemployment.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

American and Switzerland usually establish companies or firms in other countries where the labor force is cheaper and therefore they can benefit from that. However, it results in more unemployment in their countries that may therefore lead to jobless people to accept lower wages that will eventually result to a falling in nominal wages.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

In developed countries improvements in technology greatly contributed in rising wages because new technology offered the job to people especially young and educated who will know how to work with them. However, in developing countries people will not know how to work and use new technologies therefore it may actually worsen the conditions of them because firms will be most likely to search for somebody who can work with them and therefore hiring the people in the country.

Education actually really contributed to the rising real wages since people being more educated had more chance to get works and invest or trade with other countries. Health too has been a key factor that helped the rising of wages since when people have a better health they can work better and more efficiently therefore producing and getting paid more, encouraging eventual economic growth and development.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Government can lower the taxes or subside goods or services.

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# Merab_Khideshelion 29 Mar 2011 at 3:45 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In such scenario, average household is better off because its real income increases. Now, it can purchase more goods. However, this doesn't mean that inflation is good for everyone. There are some households which can't benefit from inflation, but instead, they are worse off.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

Globalization and trade allowed the US and Switzerland to import cheaper products from other countries. Mainly these countries are Asian. They also allowed people to find suitable jobs for them. So wages rise.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Competitions within these countries increased because the companies hired foreign workers and the nominal wages fell because of that.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

When workers use technology, they increase their efficiency of work. They improve not only quality, but they increase quantity of the goods too. So, their real income increases. Educated people work for higher wages because they can produce good quality goods.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Government can make education in the country chaper.

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# Fabian_MontoyaFendton 06 Apr 2011 at 9:52 pm

• Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In this situation, real income effectively rises; leaving families with more money.

• How have trade and globalization contributed to rising real wages in America and Switzerland?

Workers can strive for higher wages and compete worldwide. This fuels competition at an international level. Also results in higher wages b/c there is a specific demand for a type of worker.

• How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Because many TNC’s establish themselves in 3rd world countries. They pay less for a basic labor. Pulling down the floor for the price.

• How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

• They are all benefited. b/c technology makes things more accessible. However could contribute to unemployment.

• What types of policies can government pursue to help raise the real wages of the nation’s workers?

Setting a basic floor of prices.

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# Nicole_Sonderegger_Non 07 Apr 2011 at 6:25 pm

•Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In such a scenario, real income has increased. This means that the average household is slightly better off because incomes rose more than prices, and so people’s purchasing power has increased.

•How have trade and globalization contributed to rising real wages in America and Switzerland?

Real wages in America and Switzerland have increased because trade and globalization expand the job market. There is a greater demand for labor and so wages can increase. Developed countries can buy imports from less developed countries for cheaper prices. The exchange rate also helps developed countries because their money is worth more than that of under developed nations. This means that developed countries consumers’ purchasing power increases, people spend more, industries can expand more, and wages can increase.

•How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Trade and globalization have allowed firms to employ foreign workers who because they are usually desperate for a job and tend to be uneducated and unskilled, are willing to work for lower wages. This means that citizens are forced to compete against foreigners who will accept a much lower salary. If citizens want to have a job, then they will have to accept a lower wage.

•How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology cause increases in aggregate supply and lower average costs. This means that firms make higher profits and therefore can pay the workers higher wages. Both a healthy and a well-educated working population works a lot more efficiently than one that is sick and ignorant. Therefore, firms operate more efficiently, can cut costs, increase profits and use the gains to provide their workers with higher wages.

•What types of policies can government pursue to help raise the real wages of the nation’s workers?

The government can make a policy to raise the minimum wage or it can invest in health care and education in order to improve the “quality” of workers. Better workers will earn higher wages because they improve a firm’s performance. Expansionary fiscal policy can also increase wages by motivating people to spend more; therefore increase aggregate demand and hence, wages.

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# Nicole_Sonderegger_Non 07 Apr 2011 at 6:32 pm

@Eleonora_Bisio

Good point, lowering taxes can also help increase wages. This is because by lowering taxes, goods become cheaper. Consumers can therefore purchase more things. This causes a boost in aggregate demand which can increase businesses profits and therefore also increase the wages of the workers from these businesses.

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# tomoya_sekineon 08 Apr 2011 at 6:18 pm

1. This first question almost got me; I would have said the average household would be a lot better in such a scenario as the average incomes rise by 3% while average prices rise by 2%. In a long term, the average household would be better. BUT.. Again, this is one of those statistics that calculate the AVERAGE incomes of the AVERAGE households. I’m sure not everyone has a job where they receive decent amount of income and there are many people in different nations that have a high unemployment rate. My point is, does it really benefit the “average households”? But I would think that it would benefit the households that were taken into account by the statistics.

2. By adopting the concept of globalization and opening trades and agreements to different parts of the world, countries like American and Switzerland would benefit a lot and would experience a rising real wage in their country. For example they are able to acquire goods at a cheaper price from other countries where they cannot produce in their own or is costly to produce. By opening the nation to the world, it would give more opportunities and chances for jobs, which could lead to the increase in real wage.

3. My first example of globalization contributing to the fall in nominal wage would be the fact that globalization (and many other things) would benefit the rich, more than the poor. Therefore the rich people would have decent jobs, trading and operating with the world while the poor stay poor, as they are unable to do so. This can further be justified by the example of big multinational companies operating in other countries (for ex: an American/Swiss multinational operating in other countries instead of their own), would lead to unemployment, which would then lead to a fall in nominal wage.

4. First of all, technologies such as internet has enabled job finding/searching a lot easier as well as it has enabled working methods such as teleworking (working from home, for mothers, and people who are generally busy), which has contributed to the increase in real wages. And certainly the improvement in technologies (such as machinery and tool) has made things “easier” for workers to use and has made them more productive. I am quite unsure of what the question is asking me, technology improving health and education or health and education increasing real wage… But being healthy (workers) would reduce absenteeism, which means that they are productive and are working, which will result not in an increase in real wage but prevents the decrease in real wage. Education will give knowledge and skills required to do specific tasks for workers, therefore quality of factors of production will increase and lead to an increased productivity.

5. Well first of all the government could simply announce an increase in real wage for the nation’s workers. The government could also reduce/eliminate some taxes on firms and corporations so that they can increase after-tax incomes and such. Another thing the government could do is to provide/spend more money on education and schools/institutes to provide education for young people. As well as they can spend money for training so that workers who don’t have the skills are able to obtain them while working.

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# KangSan Keumon 08 Apr 2011 at 6:27 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

If the average prices rise 2% and the income rises 3%, the people will have an improved real income as there is more money to spend. The average household will be better off as they have more purchase power.

2. How have trade and globalization contributed to rising real wages in America and Switzerland?

The trade and globalization have raised the real wages in America and Switzerland as there are more jobs available in the countries. The exchange rate is appreciated and the imports and exports are expanded. This allows for the business to improve real wages as a whole.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

The nominal wages fall because the globalization calls for lots of forced work for unskilled workers. They earn less money while the firm gains lots of profits.

4. How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

The improvement in technology increases the real wages as there are less factors needed for supply and the same or more profit is produced by the firms. Health and education also increases because the real wages allow for more people to expend on needs such as health and education.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Governments could add a expansionary fiscal policy to help raise the real wages.

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# KangSan Keumon 08 Apr 2011 at 6:29 pm

@tomoya sekine

I differ with your statement about the average households being not benefitted in the long run. The average households are improved by the long run changes in the average income.

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# tomoya_sekineon 08 Apr 2011 at 6:41 pm

To: Noah Flaniken

For your fourth question, you have a good point; technology does not always have positive sides. You said that technology would replace workers… But the other side to that is that the business of repairing these machines would benefit a lot. And car factories, I would think the combination of both people and machine would be best or maybe a LOT of people. Wonder how Henry Ford was so successful? He used the assembly line, which effectively uses many workers and machines to assemble piece by piece of a car.

This isn’t very relevant to the concept we are talking about now, but the biggest negative side of the improvement in technology or the increase in average income is that it’s killing the environment and using up a lot of Earth’s resources. The more income/money people have, the more likely they are going to consume goods and services (which would also mean more real output). There will be an increase in the quantitative factors of production. Therefore using more and more resources… And really, when we think about it these improvements in technologies are only benefiting us, not the future generation. Not that I know if there will be a future generation…

Good comment though!

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# Merve_Akpinaron 09 Apr 2011 at 5:12 pm

1) Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In this case the real income would increase. Because average income is increasing much faster that average prices. In that kind of situation households are lucrative. Because they can obtain more products or invest with larger quantities.

2) How have trade and globalization contributed to rising real wages in America and Switzerland?

We all know in this era; companies have good opportunities for their workers with the developed technology. For that reason people must be qualified and well skilled. That is workers have to have a good education and impressive curriculum vitae. Also in that era the unemployment is getting increasing. That is why workers have a great competition between them. That is another reason for the workers in order to make them qualified. In that kind of situation; workers are accepting more money in a payment for their efforts. That is why the wages are increasing in America and Switzerland.

3) How have trade and globalization contributed to falling nominal wages in America and Switzerland?

The trade and globalization allowed America and Switzerland to employ foreign workers with fewer wages. That it will decrease the nominal wages. Because the workers who are good qualified with the citizen workers will get less amount of money.

4) How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology bring efficient working standards to companies, automatically, to workers. Better technology leads to better productivity. Better productivity brings more money for companies. And more money means more wages for workers. When we look for health; by the developing technology new cures are found like new antibiotics. People can also find a better qualified hospital or a doctor by using the internet. These are the small examples we can show for the benefit that technology requires for health. We can see same situation in education, too. Schools can provide a better education by using technological equipments. Also students can achieve a lot of information with the internet. Online education is also an example for that. (I can give myself as an example for user of an online education.) The teachers also can find better teaching techniques by using the internet.

5) What types of policies can government pursue to help raise the real wages of the nation’s workers?

Decreasing the taxes and minimizing the cost of basic things like education, health can be helpful in order to increase the wages of workers. Also for the long term education is the greatest policy government can pursue to help raise the real wages of the nation’s workers. Education is not only for raise in wages but it also helps to grow an qualified and intellectual generation.

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# Merve_Akpinaron 09 Apr 2011 at 5:22 pm

@Tomoya_Sekine

I liked you answers for all questions. But in your last answer, you said the government can simply announce an increase in real wages. But without production giving more money is just useless. More money and less production may cause inflation. Because the money is becoming less important day by day. That is why that way is not a useful one in my opinion.

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# Nesibe Z?rzak?ranon 10 Apr 2011 at 10:19 am

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

First of all real income is summation of all services&goods belonging to households. In this particular inflation case, average incomes show higher increase than average prices. That means more high quality goods can be purchased by the consumers with higher wages. Income of the workforce has a greater purchasing power then. That will result in rise in real income since average households are able to have more confidence to invest more and buy more.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

Trade and globalization helped America and Swizerland in terms of specilization. I mean workers find places where they can get more they want and they are educated and specialized. Those places are best for workers and there is higher competition ; higher wages. Also with the help of trade and globalization , America and Swizerland construct companies to places offering cheaper labour power. This enables the fact that their production is done at lower production cost. Those countries import cheaper manufactured goods for consumption instead of producing those at higher cost with domestic facilities. All in all consumer with wages can buy better quality goods; real income and real wages increase.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Foreign workers are in need of a job and no matter how low the wages are, they want to be employed. America and Swizerland accept this. However, current workers ; citizens compete against foreigners better than to be left unemployed. They also accept to work at lower wages ; fall in nominal wage. Also globalization is an advantage for rich ( America e.g.) and as they trade more, they establish more companies in other countries than own, that leads to unemployment and all in all nominal wages fall.

4. How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology enable resources to be efficiently allocated, researches to be made, specilization, better production by firm and also education to be spread over quickly and to be accessed better. Extra money is earned by firms with advanced technology. Also by technology, health will develop; diseases will be cured in a quicker time, people will be aware of diseases and take precations. Also education will benefit too. People will have access to data, and they will have opportunity to specialize. Those will make people tend to improve themselves in their areas and since they are good at their job, they will be chosen and paid higher wages; all in all increase in nominal wage.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Government will focus on policies that have target to improve health and education. Policies that will increase minimum wages and by this way government will invest more on health care and education. That will help to increase real wages because educated workers will be specliazed at their work and contribute to the company at best performance. Also expansionary fiscal policy is an effective way too. It will offer an incentive for consumers to purchase more therefore increase in AD; increase in wages.

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# Juan_Manuel_Arguedason 11 Apr 2011 at 3:37 am

Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

Due to the fact that the average prices rise by 2% and incomes rise 3%, the real income will increase as well, there would eventually be more money to spend in whatever it needs to be spended. The average househol will be better in such a scenario.

How have trade and globalization contributed to rising real wages in America and Swizerland?

It will contribute a lot to the rising real wages in America and Switzerland, because there would be much more jobs for the people.

How have trade and globalization contributed to falling nominal wages in America and Switzerland?

It falls because the globalization makes that there would be a lot of forced work. This ends in having a lot of workers who don't have the skill to work at this job.

How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

They both will contribute the rising real wages in both developed and deveolping economies because these improvements will and up the problems that are happening today. Then, there would be more resources to get all the workers be skilled.

What types of policies can government pursue to help raise the real wages of the nation’s workers?

I think that the government needs to persue the education and the health of the workers. This is because their education is the one that decides whether a person can or can't work in a company, firm, or market. Health, because you can't have sick workers in your companies.

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# Juan_Manuel_Arguedason 11 Apr 2011 at 3:45 am

@Kang San Keum

I agree with all your answers to the questions. Especially in question #1 when you asnwered that if the average prices rise 2% and the income rises 3%, the people will have an improved real income as there is more money to spend. This is completely true, due to the fact that the income increases. When the incomeincreases the money and profits increases as well. This will end up in having more money, due to the fact that the real income improved a lot.

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# tiffany_williamon 11 Apr 2011 at 12:50 pm

1.I think there would be an increase in income growth since the income has risen by 3%.

2.Since there is a rise in wages, there will be an increase in price for goods and services. However, the increase in wages has given opportunities for people to have the power to spend still.

3. Trade and globalization can give the opportunities for the unemployed to have jobs and since the unemployed people are seeking for job, they will more likely to accept any jobs with any levels of payment.

4. improvement in technology will increase production and leading to more demand where firms and businesses will earn more. This will give the employees to have the chance of a rising in real wages. In health, this will as well increase the demand for consumers who are satisfied with the new technology that has lead to better health care or better education.

5. Government may try to increase real wages for employees who have worked more than certain number of years in a certain company, or given special facilities for workers who have worked in the public or government owned companies.

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# tiffany_williamon 11 Apr 2011 at 1:09 pm

# Deepa_John

nice explanation and answer deepa.

and your comment to Jae's too, nicee.

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# Daniella_Majlufon 11 Apr 2011 at 9:47 pm

1. If the average prices rise 2% and the income rises 3%, then there will be even more money to spend, therefore the real income of the people will improve. In such scenario, the average household will be better of since they have more purchase power.

2. Trade and globalization have contributed to rising real wages in America and Switzerland because there are now more jobs available in these countries. Since the imports and exports are extended and the exchange rate is more valued, there is more availability for the businesses the real wages.

3. Trade and globalization have contributed to falling nominal wages in America and Switzerland because with globalization there is a lot of unskilled workers that are forced to work. Also, the firm gains a lot of money, but the unskilled workers make less money.

4. Improvements in technology contribute to rising real wages in both developed and developing countries because there are now less factors that are needed for supply, but there is equal or even more profit that the firms are able to produce. Health and education are also increased thanks to the real wages that allows more people to be able to spend money on necessary needs like health and education.

5. The type of policy that government can pursue to help raise the real wages of the nation’s workers is to raise the real wages by adding an expansionary fiscal policy.

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# Daniella_Majlufon 11 Apr 2011 at 9:50 pm

@ tiffany_william

I agree with your answers, especially the first one in which you say that there would be an increase in income growth since the income has risen by 3%. Also the third answer, in which you say that there would be more job opportunities for the unemployed people thanks to trade and globalization.

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# Mehmet_Mert_Sumaon 12 Apr 2011 at 12:58 pm

1. Since average income increases at a rate more than inflation, the average household will be better in this scenario. Real income increases more than nominal prices. The purchasing power of households will increase. They will be able to buy more qualified products.

2. Developed countries such as the Us and Switzerland decided to make their productions in other countries where production costs are low. In a country such as Thailand it is easy to access labour force at a cheap price. So, the imported products in the US is at a cheaper price now. The consumers are able to buy more products with better quality at a cheaper price. Their real wages increase pretty much.

3. Since developed countries prefer to make their production in foreign countries, the unemployment rate increased in these countries. The firms will start to employ people at lower wages because unemployed people will want to evade the unemployment.

4.The advancements in technology will certainly increase real wages. New job sectors will be seen and the production costs will be less because of the advancements. In education, the advancements in technology will help the people to get a better education. These people with better education are going to be offered better wages surely. People won't need to spend so much for the drugs or the operations after the advancements in the technology.

5. Merits goods such as health care and education may be subsidized. So that, the consumers save money and allocate their money for other consumptions. A minimum wage can be set up to prevent the wages from reduction. Lastly, to deter the inflation, fiscal and monetary policies can be applied. For instance, increases in taxes, lowering government expenditures and increases in interest rates would keep aggregate demand and inflation low.

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# Mehmet_Mert_Sumaon 12 Apr 2011 at 1:04 pm

@# Juan_Manuel_Arguedas_Rodriguez it is true that the government should pursue the education. My reason is a bit different. it is to help households to let them have other consumptions, as well. It is in a way to increase purchasing power.

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# Francisco_Jose_Carilon 12 Apr 2011 at 6:15 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

If this situation happens, then it will be a good thing for the households, because their purchasing power increased by 1%. This means that now they can buy more than before, even though prices have increased.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

Thanks to trade and globalization, countries are now able to produce products in other countries. Most of the time, these countries have low wages which decreases the costs of production and so do the prices. This means that now people will be able to buy more with the same amount of money.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

This happens because, now that the jobs are abroad, people in the country wont have as many jobs. This means that unemployment will raise.

4. How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

What types of policies can government pursue to help raise the real wages of the nation’s workers?

By using better tech. the costs of production are lowered, and so do the prices. This means that prices will be lower, and people will be able to buy more with the same amount of money. The same happens with health and ecucation. If there are cars, then people who would otherwise wont be able to get to school, now they can.

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# Francisco_Jose_Carilon 12 Apr 2011 at 6:17 pm

Kang sang.

I just noticed that I forgot to answer the last question. I agree with you, if companies help their employees with health and education, then their real wages will increase

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# Talia_Greeneon 12 Apr 2011 at 7:33 pm

1. Real income would rise, as the increase in income is greater than the increase in inflation. The average household would be better off.

2. They are able to take advantage of the relatively cheap labor costs in less developed areas.

3. Much of the labor is found elsewhere, increasing opportunity for unemployment for less educated people in their own countries.

4. They increase the efficiency of the work force and production, enabling products that are often of higher quality to be produced at a cheaper cost, increasing profit.

5. They can increase education and healthcare and investment into more productive technologies.

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# Talia_Greeneon 12 Apr 2011 at 7:37 pm

@Mehmet_Mert_Suma

I agree with you. I think that research and development could also be subsidized to find ways to make production more efficient.

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# Cleon 12 Apr 2011 at 9:01 pm

Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

The average household is better off because they are still experiencing an increase in income 1% above what the income was previously.

How have trade and globalization contributed to rising real wages in America and Swizerland?How have trade and globalization contributed to falling nominal wages in America and Switzerland?

because if inflation, international trade becomes less profitable, and there is a trade imbalance, exports are more profitable, imports are less profitable.

How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology cause those with lower levels of education to be more competitive for less technologically demanding jobs, and pay for technologically advanced jabs increases.

What types of policies can government pursue to help raise the real wages of the nation’s workers?

they can increase taxes, and lower government spending. However, these practices are highly unpopular, and politicians that are worried about re-election are unlikely to back such a a policy.

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# Cleon 12 Apr 2011 at 9:09 pm

@Daniella_Majluf

2. Trade and globalization have contributed to rising real wages in America and Switzerland because there are now more jobs available in these countries. Since the imports and exports are extended and the exchange rate is more valued, there is more availability for the businesses the real wages

I agree, this concept is a little counter-intuitive for me, but your explanation take account for all parts if the issue.

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# mboadeon 13 Apr 2011 at 3:07 am

Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

If the average price rise by 2% a year but the average incomes rise by 3%, inflation is not bad at all. In this situation the real income is increase 1% more than the inflation so this situation benefit the citizens because they have more purchasing power. The average household in this scenario is getting more benefit because of that extra 1% they perceive in the wage.

How have trade and globalization contributed to rising real wages in America and Swizerland?

Free trade agreements that countries like America and Swizerland have with country make the production cheaper and as result the companies have more money in bank accounts. This extra money lets the companies offer the employees better wages. As well globalization contribute to the rising real wages in America and Swizerland because the companies have a constant fight for employees and if they do not perceive the same or more they will move to a company in another country.

How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Trade and globalization contributed to falling nominal wages in America and Switzerland because there is more competition in the labor market. Now is possible for companies hire people in other countries with not having important increments in their cost of production.

How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

The improvements in technology contribute to rising real wages in both developed and developing economies because they make production more efficient. The efficiency of those processes of production are seen by the people in the average income of the households of the economy. Health and education are also improve by technology because people in developing countries have the possibility to interact with information in Internet which could not be available in the countries. As well health is improve because many of the techniques use in develop countries can be taken at low costs to those countries with less develop.

What types of policies can government pursue to help raise the real wages of the nation’s workers?

One policy the government could do for help raise the real wages of the nation’s workers is the reduction of taxes. This reduction in the taxes on certain products could help increase the increment of real wages because the workers will interact with products at lower prices.

Another policy that the government could pursue to help raise the real wages is the increment in the minimum wages. This increment in the minimum wages will affect in a considerable way the average real wages because a large percent of the workers in the developing economy receive this kind of wage.

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# mboadeon 13 Apr 2011 at 3:10 am

Hi, Francisco I agree with you globalization and trade has help for having products at lower prices making the real wages of countries like America and Switzerland be higher. As well I agree with you and your point that the fall of nominal wages is cause by job abroad.

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# Fahad_alrebdion 14 Apr 2011 at 1:14 am

My blog post:

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

IF the average price rise by 2% and the average income rise by 3%, the real income in this situation would raise this would be better off for the average household in this scenario. So it would be better for the average household because with more income purchasing products and investing would be a choice.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

Trade and globalization have made America and Switzerland to have a foreign company where production costs are low. From this cheap products are going to be imported to America and Switzerland by their foreign companies. Then customers (In America and Switerland) are going to buy those cheap products which would increase the real wages.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Since most of their production of goods is done in other foreign countries (not America and Switzerland), there is a downside to this issue. If most of the companies use this way of production they would lower the chances of people being employed in those big companies (unemployment occurs). Therefore, the real wages would decrease.

4. How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology contributes allot to a country in a sense it speeds up and makes easier for production of goods and services to occur. With the speed of production more goods will be produced. Usually using these technologies requires professional workers to do it. Therefore, companies would raise their income to the professional workers so they can stay with them to continue his job, hence a rise in real wages would occur. This implies too to health and education. In health, it requires a very good skill of the doctor to use its developed tools, so his income would increase because not everyone knows how to use it. In Education, same aspect applies to online teaching since it is an improved technology.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Governments can subsidies to education since it increases the knowledge of a potential worker. With better education a person can get a high income job.

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# Fahad_alrebdion 14 Apr 2011 at 1:16 am

@Frederico Carvalho

I think that for number 4 you were very innovative and creative in using variables (x and y) to help us udestand the concept which I really liked allot. Also because I love math too . Anyways I thought you didn’t explain the improvement of technology to how it raises real wages well enough. You just mentioned that its easier and faster which is ok too. Overall well done on answering the rest of the questions.

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# Haleigh_Eppleron 14 Apr 2011 at 4:57 am

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

1. If you initially glance at the situation, you would say that the income is rising by 3% as it is stated. The three percent must be places into terms of real income, which differs because real income accounts only an increase in actual purchasing power. The second component that must be analyzed is the average price. The amount the average price increases shows the inflation in this situation because the increase in the price level of the good, matched with an increase in the price level of labour, requires a great quantity of money to be in circulation at a given time. To find the percent increase of real income, the income rise (3%) taken away from the price rise (2%).

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

1. The increase in trade and globalization has allowed for Swiss and American companies to have a larger consumer base through other access to the populace of other states.

2. There is also outsourcing(= sending jobs overseas where labour is more afforadable) which is allowing for goods to be produced at a lower price and sold at a lower price. The unemployment is raised slightly, but the average Swiss or American does not hold a job that would be outsourced, but rather a job somewhere in management of services that cannot be as easily outsourced. (May I qualify this in saying the concern over outsourcing has been growing in recent years as people worry about the growth of China and India, and there cheap labour markets taking jobs from the west._)

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

1. Outsourcing, as previously discussed can lower the nominal wage. As the labourers in other countries are willing to work at any price, American and Swiss laborers have been forced to take a cut in wages in order to be competitive. The lowered wages are met by a lowered price, as previously stated.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

1. Improvements in technology create a specialized labourer. Rather than having a labourer who simply soders a piece together, labouers are expected to know how to use the equipment that comes with the job at maximum efficiency. Many of the simple jobs are done by machines so those left require expertise that can only be delivered by a human operator

2. At the same time, the usage of machines decreases the cost of production because it reduces the number of labourers and therefore the overall output of wages. The decrease in total price matched with the increase in nominal wage provides an increase in real wages.

3. The labourers are required to have a greater education so the jobs they would like to pursue are not replacable by machines. The education can be classical education (in a classroom, studying) or it can be education about the equipment in a workshop (vocational or even on the job training.) However, the average worker now needs a greater degree of education.

4. Healthwise, an increase in real profits combines with advances in technology results in better medical care. The technology allows for the cures to new diseases as well as disease prevention. The higher profits create a larger market so the people do not get sick and are able to continue working and continue to make the higher wages.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

1. The government could increase spending on public goods (eg; education & health care) as well as encourage research and development through grants so the markets always remain at the top of the field and are therefore able to charge the highest prices because there is no alternative due to the technological advances. The increase in public goods would create a more able workforce to produce these goods driving down costs by raising efficiency.

@Fahad, How would increasing the wages of all the people result in an increase in real wages. If the government were required to fund more education for all, and all recieved higher paying jobs, would that not simply increase inflation ahead of the increase in wage because as the wages of all rise so do the raise in price. What do you think can be done to combat such a situation?

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# Ece_Erdemon 15 Apr 2011 at 7:38 am

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In this scenario, the real income will be increased. The household will be better off because the income rate would rose more than the average prices and it is going to help the people to purchase more. Their purchasing power will be increased and they will be advantageous.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

With the developing technology, the companies will have better opportunities for their workers and they are going to be employed with better standards. In those situations, the companies will want to employ more qualified workers than the ordinary ones because there is a great competition going on with the development on technology and to keep up with that the companies need more qualified workers. Thus, the qualified workers will demand higher wages, or as for the companies, they will increase the wages of the people because they want to motivate them and increase the competition, therefore increase the amount of work and the quality of the work .That’s why the wages are increasing in those specific countries.

3.How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Trade and globalization allows the companies to employ people from foreign companies. The foreign companies will be able to pay less amount of money, less wages for the foreign people they are working with because those people will get fewer amount of money from the normal citizens. Thus, the nominal wages will fall.

4.How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Developing technology means better working conditions for the workers and for the companies. This helps to increase the work of power and the productivity will also rise accordingly. The higher the productivity, the higher the money that the companies gain. If the income of a company is high, this will lead a rise in the wages too. If we think about the health, the developing technology will allow the scientist or the doctors to make more research and therefore find new cures for the diseases, give better services for the citizens. Also, for the education, the developing technology will allow students for better information. By projectors, by the help of the internet, the students will be able to get more qualified education.

5.What types of policies can government pursue to help raise the real wages of the nation’s workers?

For that, the taxes should be reduced first. After that, the basic needs like education and health can be without any pavement. This will help increasing the wages. If the education is not expensive, then the workers will be more qualified because they will be able to get more education. Better workers will get better wages.

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# Ece_Erdemon 15 Apr 2011 at 7:42 am

@Nabil Elbehri

I liked the way you explain the first question, with the mathematical proofs. You have good thoughts for the other questions.

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# Ece_Erdemon 15 Apr 2011 at 7:44 am

@Juan_Manuel_Arguedas_Rodriguez

I think you should expand the 2nd question, because you said there will be more jobs but according to what? You should explain it more.

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# Huanni_Wuon 15 Apr 2011 at 2:43 pm

1.It means the incomes rise faster than prices. In this case the real incomes rise by 1%. Other factors remain unchanged, the average household is better off. However, will wages always grow faster than average prices?

2.The opening up to the global market allows America and Swizerland to sell their products out to foreign countries (usually high-end products, and Swizerland is famous for chocolate). Aggregate demand is drawn up by export. Educated and skilled working people will be largely demanded, and therefore the real wages are driven up by the competitng demand for high-skilled labour.

3.Globolizaiton also brings in foreign competition. The cheap labour inflow has competed out the unskilled labour in these two countries. Most of the traditional industries such as manufacture are outsourced to developing countries. In this way, the unskilled people hardly find job or even they do, they are offered fairly low wages. Trade/globalization contribute to falling nominal wages in this way.

4.Firstly, improvements in techonology will make skilled labour more demanded. High-end industreis are usually picky about quality of labour, and plus these industreis make relatively large profits. Therefore they are more willing to attract well-educated people by high wages. Secondly, the improvements in technology simply increase productivity. Some firms will pass on the extra profits benefited from technology to the employees. Therefore the real wages are increased.

More straightforward, technology improvement enhance the power of hospitals making them more efficient and more accurate when finding and curing diseases.

Possibility of access to education is increased by technology. Technology improvement provides a variety ways of gaining knowledge. It is easy to gain all kinds of information today. Knowledge is spreaded faster and broader nowadays. Want to know something? Google it. Finding definition? Dictionary.com and wikipedia!

5.Supply-side policies.

Simply out, education!

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# Huanni_Wuon 15 Apr 2011 at 2:48 pm

@Haleigh_Eppler,

Increase of public goods supply is a good point. In my opinion, higher real wages are dependent on the nation's ability of reaching out to larger aggregate supply.

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# Bryan_DiLauraon 15 Apr 2011 at 10:00 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario

Inflation by itself is bad, however when it is brought into a fuller context where wage levels are also considered, it isn't always bad. If the situation was the one raised in this question, there would in fact be a 1% increase in income because the average income is increasing faster than average price. The average household is better off because they are earning more.

2. How have trade and globalization contributed to rising real wages in America and Switzerland?

America and Switzerland both have very specialized exports to other countries (the globalization). These more highly specialized exports require more specialized, and skilled workers. More skilled and educated workers often times require more pay than some other uneducated person without skill. So the more specialization, the higher the wages.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Because, as I said above, the workforce is specialized, that means that there isn't a need for mass amounts of people working in firms. This means that there are relatively few people working, who are earning large amounts of pay. Also, there is lots of cheap labor outside of these countries, so the labor itself can be "imported" from other countries.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology contribute to rising real wages because it allows for a single worker to be much more productive than ever before. It allows for a single person to be a much more effective worker, producing that much more, and again, allowing for less labor to be used. Also, technology is a specialization as there are many niches in the technology field, allowing for more skilled workers. In health and education, there may not be direct monetary benefits of technology, but the social benefit is enormous.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

One word: EDUCATION

Also, lowering interest rates (encouraging people to borrow) will make starting up a new company etc more attractive.

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# Melis_Selin_Tatlicanon 16 Apr 2011 at 12:21 am

1) In this case real income increases. Average income increases with average price. Households can invest in large quantities so that households are lucrative.

2) Companies have good opportunities I order to develop themselves. So that workers should be qualified. Workers should be educated. When the quality of workers increase the salary that they get also increases. So that the wages are increasing in America and Switzerland.

3) The trade and globalization have foreign workers with low wages in America and Switzerland. So the nominal wages decreases. Because then the qualified workers are working with low wages.

4) Improvements in technology mean efficient working areas in companies and efficient workers. Technology also effects productivity in a good way and this improvement means more money and more income. This situation increases the workers’ wages. With the help of developments in technology new techniques can be found in terms of health. In terms of schools there can be better learning areas for students and having information from different resources can improve the education.

5) The basic policy can be decreasing the taxes and cost of common needs for the society. Long term education can a policy the government can raise the real wages of workers.

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# Melis_Selin_Tatlicanon 16 Apr 2011 at 12:24 am

Hi Ece, ? agree with you about your answers to the questions and also I like your explanations in your answers.

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# Dilan_Guneson 16 Apr 2011 at 7:08 am

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

If price rise by 2% to 3% then there will be an increase in real income because people will spend more Money which is a good thing because the average household will be better in such a scenario.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

Globalization made America and Swizerland different than others. If a place is good for workers then there will be more competition for being a worker in that place. This will rise the wages. This is because of the expanded job opportunities.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

This is about foreign workers. They will want to work in any job even though there is a law wage this will cause a fall in norminal wages. Because a citizen of that country (America or Switerland) should accept lower wages if they want to compete against the foreigners.

4. How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

If a country is developed in terms of health and education we can say that the workers will be healthy and educated, more skilled. So these kinds of workers will want higher wages. For the improvements in technology will make markets make more profit which cause a wish to have higher wages.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

We can consider the things in the previous question. Government can make improvements in terms of health care or education to maket he workers more qualified.

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# Dilan_Guneson 16 Apr 2011 at 7:10 am

To Merve Akpinar

I really liked your analysis to the questions and for the 5th question you have mentioned about the taxes which is something that I didn't consider while I was answering the question but you are totally right.

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# Ozge_Elif_Ozeron 16 Apr 2011 at 10:16 am

# Noah Flaniken
I agree that the most available thing that goverment can do is inversting more money to educationi because like it is stated in the article education is key of the workers world.

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# Ozge_Elif_Ozeron 16 Apr 2011 at 11:13 am

1.Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

If something like that occurs, since the increase in the average prices is faster than the increase in the average prices, consumers will start to consume more. Thus, the real income will raise.

2.How have trade and globalization contributed to rising real wages in America and Swizerland?

Nowadays, the competition in twork opportunities increases a lot since people can have different education and have different experiences. Thus, workers start to expect higher wages because if they cannot get wht they expected they have a lot of places to work. However, companies do not want to lose a qualified workers so they will chose to settle.

3.How have trade and globalization contributed to falling nominal wages in America and Switzerland?

America and Switzerland are both countries which have a lot of foreign workers and foreign workers with the same quality with the workers will work for lower wages so companies will choose to have them, but the other workers can see that and decide to work for lower wages.

4.How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology increases the production of firms and makes it easier. Thus, firms start to earn more money and this money can result in an increase in wages. Also, increase in techonology means increase in health and education, because by techonology more people will be able to reach health and education.

5.What types of policies can government pursue to help raise the real wages of the nation’s workers?

The government can invest more money to education, because education plays very important role in the workers world. In the long run, workers with education can result in foreign solution but it is good solution for short run and I think it is what is needed.

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# Asucan_Odcikinon 16 Apr 2011 at 5:13 pm

1)For this situation average income is rising more than average prices. So it is a better situation as more of goods can be purchased by consumers. So for average household is better is in that scenario as average incomes are rising they can buy more high quality products. Also real income is increasing for this situation as well.

2)The USA and Switzerland are the developed countries so they want to minimize cost in economy. Because of that they produce their goods in other countries which have a potential to have workers working with little amount of wages. So these countries produce at minimum cost which brings them to sell these products at cheaper price as well. So people in the countries can buy these products easily which make their real wages rising.

3)As these developed countries produce at the outside and use the workers of other countries the unemployment rate is getting bigger in their own countries. As unemployment rises firms in that countries want to hire workers at very low wages and because of the big unemployment workers will accept this offer. This makes their economy worse which is the main reason of falling nominal wages.

4)As technology develops there will be more opportunities for people about jobs. For example for the help of new skill there can be new job sectors which make new job opportunities for people. Also as technology develops production costs will start to decrease and almost minimize which provides high wages as firms cost less than before. Also for education, technological developments increases wages so people can spend more money on education as their average income rises. Also because of technological development which also includes new developments in medicine, people can spend less amount of their money on health.

5)Government can subsidized education more as it directly helps a nation to be more educated which will contribute to economy in the long run positively. Also they can set up a minimum wage so that they can prevent reduction at maximum level. Maybe they could also motivate consumers to spend more on goods by using fiscal policy.

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# Asucan_Odcikinon 16 Apr 2011 at 5:15 pm

@Ozge_Elif_Ozer

Hey Özge you are very right by saying that technological developments create more opportunities to people about education and health. Also I really liked you opinions about policies that government can use to help raise the real wages.

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# Gökçe G&on 16 Apr 2011 at 7:24 pm

• Real income means the measurement of the quantity and quality of services and goods that someone possesses. If the average prices rise by 2% while average incomes rise by 3%, so that average incemes are rising much faster than average prices, this is benefical to the consumers because the more goods of better quality can be purchased by the consumers receiving the wages. So we can say that the real incme is increased along with the rise in avarage wages.

• globalization and trade was enabled by multinational companies which are originated from America and Switzerland in order to establish their companies where cheaper foreign labour presence their production at lower production cost. This means the more developed countries, the cheaper manufactured goods for consumption.

• the products can be cheaper but this comes at an opportunity cost. As ? mentioned in the previous question America and Switzerland multinationals produce in a different place in order to employ the workforce at cheaper wages, for their economic benefition. However, this induce much unemployment in their countries. If unepmloyed people accept the lower wages the unemployment in the long-term would be avoided.

• developments in technology gives opportunity for having better health and education services. The better education means the better labour so the nominal wages increases. Moreover, the use of technology in any sectors of an economy in both developed and developing countries increases overall efficiency, productivity, thus stimulating profits, GDP, raising wages, which further stimulate consumption, leading to rising real wages.

• governments can subsidies to education since it increases the knowledge of a workers in the long run. better education means qualified person so this person can get a high income job.

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# Dogan_Can_Ozcanon 17 Apr 2011 at 4:18 pm

Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

- Average income will increase so the real income will increase, too. In a such situation households will produce more product and as a result of this they will have more investment.

How have trade and globalization contributed to rising real wages in America and Switzerland?

- By the development of the technology robots which have the same abilities with humans took the place of the people in the factories. So this caused a competition between people. Because by this situation unemployement rate increased all around the world. Also robots can't to all the works that humans do, they don't have a brain like humans. As I said before this caused a competition between people. They have to have a lot of features for example educated etc. We can understand that workers became more qualified. Because of this in USA and Switzerland real wages increased.

How have trade and globalization contributed to falling nominal wages in America and Switzerland?

- Globalization gave a chance to foreign people to work in America and Switzerland. But foreign workers are paid less than the citizen workers. Because of this nominal wages decreased.

How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

- By the development of the technology companies started to use more technological machines. This means they produce more in less time. For example before these technological developments a company was producing 10 shoes in 1 day but by the development of the technology they started to produce 100 shoes in a day. So this means more production more income. And more income means more wages for the workers. When we consider health by the development of the technology doctors started to find new techniques for some diseases such as cancer. This means doctor earns more money. We can give the same example for the education part. The teacher can find different methods for teaching.

What types of policies can government pursue to help raise the real wages of the nation’s workers?

- The most important thing that a government can do to raise the real wages of the nation's workers is decreasing the taxes. I think they also should decrease the cost of education, health etc. Because when people paid for these things they would pay most amount of his/her real wage.

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# Dogan_Can_Ozcanon 17 Apr 2011 at 4:22 pm

@Ozge

For the 5th question I wasn't thinking like you until I read your answer. I think you are right all the things are on the hand of the government. If government can invest more money to education they will be helping to nation’s workers for the raise of the real wages.

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# Bryan_DiLauraon 18 Apr 2011 at 12:05 am

@ Ece_Erdem

You make a really good point in question number 5. Taxes and education are very important factors.

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# William Overhauseron 20 Apr 2011 at 3:13 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

Real income increases because it is rising faster than inflation. The average household is better off because they can buy more with their money.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

The economy is getting better, giving more people access to better quality products.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Outsourcing jobs has hurt the workers in the US, slowing the growth of the average wages.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

New technologies help lower costs which lowers prices and hence inflation. Better-educated people can get better jobs and make more money.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

They can implement supply-side policies that increase the long run aggregate supply curve.

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# William Overhauseron 20 Apr 2011 at 3:16 pm

@Asucan

But won't increasing minimum wage eventually lead to greater inflation?

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# Bahar Erdo?duon 26 Apr 2011 at 9:47 am

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In this inflation case, average incomes show higher increase than average prices. That means more high quality goods can be buyed by the consumers.The result in this rise will be a result that is better for consumer. In real income there will be a rise because average households are able to invest more due to this case.

2. How have trade and globalization contributed to rising real wages in America and Swizerland?

Trade and globalization helped America and Swizerland. Workers are now able to find places where they can get more of what they wanted and they will be educated and specialized. The higher wages are the higher competition is felt. Moreover, America and Swizerland will construct companies to places offering cheaper workers and it is good for a company in terms of having more profit by giving less money to the workers. Their production is done at lower production cost. It will result like all consumers with wages can buy better quality goods; real income and real wages increase.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Foreign workers need jobs and conditions are not important for them they just save the day and it doesn’t matter how low the wages are.And America and Swizerland accept this. However, current workers ; citizens are trying to have job against foreigners, whatever the wage is it is better than to be left unemployed. This situation causes citizens to work for a lower wage. So that nominal wages fall.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Extra money is earned by firms with advanced technology. Technology allows firms to be quick production. The more they produce the more they have profit. Also by technology, health will develop. For example in the time of Industrial revolution, number of deaths decreased and there was a big increase in population. This rapid increase was because of technology. It developed health. Diseases will be cured. Also education has benefits too. People can access to data and they will have opportunity to specialize. This accessing to data will make people to improve themselves in some areas and since they are good at their job, they will be chosen and paid higher wages. It will result as increase in nominal wage.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Government will focus on improving health and education. These policies will increase minimum wages and by this way government will invest more on health care and education. So that workers will be specialized at their work and work in company at their best performance.

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# Bahar Erdo?duon 26 Apr 2011 at 9:55 am

@William Overhauser, you are right about the first question."Real income increases because it is rising faster than inflation. The average household is better off because they can buy more with their money."

The inflation is better in this particular situation.

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# Kansuon 26 Apr 2011 at 1:22 pm

1.Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

Real income will rise, with this increase average households can purchase more products or they can want to invest more. The purchasing power will be increased, it will be advatage for them.

2.How have trade and globalization contributed to rising real wages in America and Swizerland?

With the development in globalization and trade and adopting to that, workers are now able to get the jobs they want, they can be specialized in those jobs. So the countries will experience a rising real real wage. Countries will be able to obtain goods in cheaper prices.

3.How have trade and globalization contributed to falling nominal wages in America and Switzerland?

Employing foreigners become something possible and easy for US and Switzerland with the trade and globalization. So that competition increased and firms are forced to cheapen their wages, and that also cause the nominal wages of citizens to decrease.

4. How do improvments in technology contribute to rising real wages in both developed and developing economies? What about health and education?

With the developments in technology, there will be better facilities. However, there is also something about the technology and its unrealibility. Because if there is a problem with technology, life stops. For example, when electricity is gone in factories, the production will stop. Also, technology can take places of the workers in some cases (like business machines). On the other hand, technology is used in health and education which are two most significant things in a country, and will develop that society.

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# Muhammet_Murat_Sekbaon 26 Apr 2011 at 4:13 pm

1. Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

In this situation, real income has increased. It means that the average household is better off because incomes rise more than prices. As a result purchasing power will be increased.

2. How have trade and globalization contributed to rising real wages in America and Switzerland?

By using the concept of globalization and opening trades and agreements to different parts of the worlds, so other countries would have benefit from this position like America and Switzerland. E.g. the countries can be able to buy the goods at cheaper price from other countries. Moreover, by opening the nation to the world, it gives the job opportunity for people.

3. How have trade and globalization contributed to falling nominal wages in America and Switzerland?

With the globalization the money that workers earn is decreasing, while the firm gains lots of profits.

4. How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology will increase production and it will lead to more demand. By this method, employees will have chance of having a high real wage. In health and education, this will also increase the demand It would lead to better health care and better education for the consumers.

5. What types of policies can government pursue to help raise the real wages of the nation’s workers?

Government can increase the real wages for the employees who worked for many years. Also, government may give more facilities for the workers who have worked in public or government companies.

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# Muhammet_Murat_Sekbaon 26 Apr 2011 at 4:15 pm

@ Kansu

I agree with you in second question. As you said with globalization, workers may be able to get the jobs they want, they can be specialized in those jobs.

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# Alehsan Bredeeon 30 Apr 2011 at 6:15 pm

• Inflation is bad, right? Well, what if average prices rise by 2% a year but average incomes rise by 3%. What happens to real income in this situation? Is the average household better or worse off in such a scenario?

Real income is the measurement of the quantity and quality of goods and services that a household possess. If average prices rise by 2% a year and incomes rise by 3% then the household can buy relatively more quantity of goods and services and thus will have more real income. An average household is better off in such a scenario as they can purchase more goods at a probably higher quality.

• How have trade and globalization contributed to rising real wages in America and Switzerland?

Trade and globalization have enabled multinational companies originating from America and Switzerland to establish their companies elsewhere where relatively cheaper foreign labor stimulates their production at lower production costs. Thus, multinational companies can provide goods and services for cheaper prices due to lower average costs. Furthermore, exchange rates contribute to lower prices. Moreover, trade has allowed goods that are produced more cheaply in other countries to be offered effectively in markets of America and Switzerland. Hence, the average household can purchase more goods and services with the same income as prices are cheaper. Thus, real wages have risen due to trade and globalization.

• How have trade and globalization contributed to falling nominal wages in America and Switzerland?

There is an opportunity cost to the positive effects of trade and globalization on nominal wages. Companies that leave America to produce where it is cheaper leave back unemployed labor and thus average wage rates are lowered. Additionally, trade makes some domestic companies in America and Switzerland uncompetitive to foreign companies and as a result these have to cut average costs by reducing labor and thus many people become unemployed as a consequence. As a result this unemployment the government may also raise income taxes to assure the well-being of the unemployed. Thus, there are lower nominal wage rates due to globalization and trade in Switzerland and America.

• How do improvements in technology contribute to rising real wages in both developed and developing economies? What about health and education?

Improvements in technology have made production much more productive. This is because with new methods of technology, production processes can be carried out much more easily and effectively. Thus as a result of increased productivity LARS shifts to the right as there is more potential output. Similarly healthcare and education make production processes more effective by increasing the productivity of labor. If Lars shifts, ceteris peribus, prices will be lower and real output will be higher. Thus consumers can buy more goods with the same amount of income. Hence, real wages are increased. Moreover, technology, education and healthcare decrease the average costs for producers. And thus prices will fall and real wages will rise

• What types of policies can government pursue to help raise the real wages of the nation’s workers?

The government may use supply side policies to shift LARS to the right and thus increase the level of real wages. This can be done in the long term by investing into healthcare, technology, education and research and development.

The government may choose to reduce taxes on nominal wages so that consumers may have more of their incomes left for consumption of goods, thus increasing their real wages.

Moreover, the government may consider establishing a minimum wage in the nation, which is constantly adjusted for inflation, a persistent increase in the general level of prices, so that when prices increase, then nominal wages and therefore real wages of the nation’s labor will also increase.

The government may also resort to other options. For example, imposing a combination of both supply-side and demand-side policies as well as deflationary fiscal, increase in taxes and lower government spending, and deflationary monetary policies, raise in interest and reduce the money supply, to reduce inflation. This will maintain an increase in the nation’s workforce’s wages and will therefore help raise the real wages, only if the rate of inflation is lower than the rate of the average increase in income. However, it’s not in the government’s favor to impose such policies, despite being quite effective, since it would displease the people/ the workforce which would lessen this government’s chances later, of being re-elected. Moreover, it would be very difficult for a government to reduce its spending as in the case of deflationary fiscal policies because of their commitment to the public.

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# Alehsan Bredeeon 30 Apr 2011 at 6:19 pm

@muhammat_murat_sekban

WHy is the money of the workers decreasing while the firms make profits due to globalization?

Why does increasing demand lead to better healthcare and higher wages?

DOnt you think that there are signifiicant oppurtunity cost to raising wages of employes, for the government and for firms? DOnt you think increasing education and research and thus productivity would be the better solution?

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