Question

How do gains in labor productivity lead to gains in GDP per capita?

Short answer

Gains in labor productivity contribute to increases in GDP per capita since workers earn more as they generate more goods.

Step-by-step solution

Step 1. Defines worker productivity.

The value of goods and services produced by one hour of labor is calculated as worker productivity.

Increases in labor productivity translate into higher GDP per capita.

The total amount of products and services produced inside a country is divided by the total population of that country to calculate per capita GDP.

A rise in the standard of living is caused by an increase in labor productivity. This is due to the fact that as workers produce more things, their earnings rise. As a result, they'll have more disposable income at their disposal. As a result, workers will be able to consume more. As a result, the GDP per capita will rise.