Question

Say that the average worker in the U.S. economy is eight times as productive as an average worker in Mexico. If the productivity of U.S. workers grows at 2% for 25 years and the productivity of Mexico’s workers grows at 6% for 25 years, which country will have higher worker productivity at that point?

Short answer

Mexico- $429.187/hour (assuming productivity to be $100/hour)

US- $1312.485/hour

US has higher productivity.

Step-by-step solution

Step1. Introduction

Productivity is how efficiently an economy can produce goods such that it requires the least resources, least time and the least cost is incurred.

Step2. Calculation

Basic formula-

(1+x%)^n * Productivity

n- number of years

Productivity- initial/base

We are assuming Mexico's productivity initially to be $100/hr, hence US's will become $800/hr.

Mexico- $429.187/hour

6% for 25 years

= (1+0.06)^25 * 100

=$429.187/hour

US- $1312.485/hour

2% for 25 years

= (1+0.02)^25 * 800

=$1312.485/hour

US has a higher productivity at the prevailing conditions.