Calculating Productivity Gains from Labor Reallocation

A developing economy observes a large-scale migration of workers from traditional farming to newly established factories. According to the economic principles explaining growth through structural change, why does this shift typically lead to an increase in the economy's overall output per person?

Analyzing Productivity Growth from Structural Change

An economist observes a country where many people are moving from subsistence farming, where their output is very low, to factory jobs. A critic argues, 'This shift isn't real progress because the factory wages are barely higher than what the farmers could earn on their land.' Based on the economic principle of growth through labor reallocation, evaluate the critic's argument.

In an economy with a large subsistence farming sector and a smaller, more productive industrial sector, the primary reason that overall economic output per worker increases when a farmer moves to a factory job is that the individual worker immediately becomes more skilled and productive upon entering the industrial environment.

Explaining Productivity Gains from Labor Reallocation

Analyzing a Failure in Structural Transformation

Imagine an economy that has been growing by shifting workers from a large, traditional agricultural sector to a more productive industrial sector. An economist observes this trend and predicts that, eventually, the rate of overall productivity growth from this specific process of labor reallocation will slow down, even if the industrial sector continues to need more workers. Which of the following provides the best explanation for this prediction?

Analyzing Stagnant Productivity Despite Labor Reallocation

Consider two hypothetical economies, both with a large agricultural sector and a smaller industrial sector. In both economies, 10% of the agricultural workforce moves to the industrial sector over a decade.

• In Economy A, the industrial sector's output per worker is 20% higher than the agricultural sector's.
• In Economy B, due to significant technological investment, the industrial sector's output per worker is 200% higher than the agricultural sector's.

Based on the principle of growth through labor reallocation, which statement most accurately evaluates the expected outcome?