According to the neoclassical theory of distribution, the real wage earned by any worker equals that worker’s marginal productivity. Let’s use this insight to examine the incomes of two groups of workers: farmers and barbers.
a. Over the past century, the productivity of farmers has risen substantially because of technological progress. According to the neoclassical theory, what should have happened to their real wage?
b. In what units is the real wage discussed in part (a) measured?
c. Over the same period, the productivity of barbers has remained constant. What should have happened to their real wage?
d. In what units is the real wage in part (c) measured?
e. Suppose workers can move freely between being farmers and being barbers. What does this mobility imply for the wages of farmers and barbers?
f. What do your previous answers imply for the price of haircuts relative to the price of food?
g. Who benefits from technological progress in farming—farmers or barbers?