Impact of Productivity Improvements on Income Distribution

Medium Economic Growth And Development Productivity

Consider a developing economy that has recently invested heavily in education and technology to increase its overall productivity. As a result, the nation experiences an improvement in both labor and capital productivity. However, there is a concern among policymakers regarding how these changes might affect income distribution within the economy.

Which of the following statements best describes the relationship between productivity improvements and income distribution?

Improvements in productivity will always lead to a more equitable income distribution as workers benefit from higher wages.

Productivity improvements can lead to increased income inequality if benefits accrue disproportionately to certain sectors or groups.

Higher productivity invariably results in lower unemployment rates and an overall increase in wages across all sectors.

Hint

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