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GMATPREP ChallengeQ -Many people believe that because wages

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GMAT Club Verbal Expert
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Status: GMAT and GRE tutor
Joined: 13 Aug 2009
Posts: 1189

Kudos [?]: 1902 [0], given: 454

Location: United States
GMAT 1: 780 Q51 V46
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Re: GMATPREP ChallengeQ -Many people believe that because wages [#permalink]

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New post 19 Oct 2017, 21:28
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zaidq1 wrote:
GMATNinja
Sir,
could you please help me with the below doubts for question 3.

"Developed countries could compete more effectively for jobs with developing countries."

if capital movement is restricted in developing countries, the productivity will not be able to increase value of the currency and hence will lead to an increase in wages.
now, if the wages in developing countries are increased, the developed countries will become more effective in competing, as the one of the reason why developing countries were gaining jobs was because of low wages. so b can be a contender.

"Workers could obtain higher wages by increasing their productivity."

if currency is kept undervalued the productivity increase has to cause an increase in wages. so why is E wrong.

Quote:
if capital movement is restricted in developing countries, the productivity will not be able to increase value of the currency and hence will lead to an increase in wages.
This is not necessarily true. We are told that IF we have productivity improvements, we will likely see an increase in wages. That still leaves the possibility that we could have productivity improvements without an increase in wages. Now, if we go with the likely scenario where wages should increase BUT the wages are not allowed to rise, THEN the value of the country's currency will appreciate, unless the country manages to deliberately undervalue their currency. But deliberately undervaluing currency is hard to do because capital moves more freely.

So if capital were restricted and could NOT move freely, it would be hard for a country to deliberately undervalue its currency. This means that we could have productivity improvements WITHOUT an increase in wages and also WITHOUT an appreciate in the value of the country's currency, which is exactly what choice (D) says.

As for choice (B), just because we have productivity improvements and NO increase in the value of the currency does not mean that wages will increase. Theoretically, if wages were not allowed to rise and the movement of capital were restricted, we could have productivity improvements with neither an increase in wages nor an appreciation in the value of the currency.

Quote:
if currency is kept undervalued the productivity increase has to cause an increase in wages
This logic is not valid for the same reason, so choice (E) should also be eliminated.

Refer to the following portions further supporting choice (D):

  • "In a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages." - Note that this does not say that wages will DEFINITELY increase with productivity improvements.
  • If the productivity improvements should cause wages to increase BUT "wages are not allowed to rise, the value of the country's currency will appreciate, which (from the developed countries' point of view) is the equivalent of increased wages in the developing country." - This portion refers to the LIKELY scenario in which wages should increase with productivity. If, in that case, wages are NOT allowed to rise, the value of the currency will appreciate.
  • Countries can try to deliberately undervalue their currency, but "that is now much harder to do in a world where capital moves more freely."

I hope that helps!
_________________

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Kudos [?]: 1902 [0], given: 454

Expert Post
GMAT Club Verbal Expert
User avatar
G
Status: GMAT and GRE tutor
Joined: 13 Aug 2009
Posts: 1189

Kudos [?]: 1902 [0], given: 454

Location: United States
GMAT 1: 780 Q51 V46
GMAT 2: 800 Q51 V51
GRE 1: 340 Q170 V170
Re: GMATPREP ChallengeQ -Many people believe that because wages [#permalink]

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New post 19 Oct 2017, 21:31
Madhavi1990 wrote:
With regards to Q1, I am still not clear why D is right :( - where was the average productivity element deduced? Do request you to put out your understanding of ques/ method of identifying the inference of D. Thank you!

Quote:
1. The passage suggests that which of the following would best explain why, in a developing country, some firms that have raised their productivity continue to pay low wages?
A. Wages are influenced by the extent to which productivity increases are based on the latest technology.
B. Wages are influenced by the extent to which labor unions have organized the country's workers.
C. Wages are not determined by productivity improvements in goods traded internationally.
D. The average productivity of the workers in the country has not risen.
E. The education level of the workers in the country determines wages.

The key to this question is in this chunk of the passage: "Some individual firms in developing countries have raised their productivity but kept their wages (which are influenced by average productivity in the country's economy) low." This tells us that wages are influenced by average productivity in a country's economy. So if one firm has raised its productivity but, on average, most other firms in the country have low productivity, wages might remain low even at the firm that has raised its productivity.

In other words, if one firm raises its productivity but the average productivity of the workers in the country has not risen, and that one firm could continue to pay low wages. This is exactly what choice (D) says.

I hope that helps!
_________________

GMAT Club Verbal Expert | GMAT/GRE tutor at www.gmatninja.com (Now hiring!) | GMAT blog | Food blog | Friendly warning: I'm bad at PMs

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How to go from great (760) to incredible (780) on GMAT SC | That "-ing" Word Probably Isn't a Verb | That "-ed" Word Might Not Be a Verb, Either | No-BS Guide to GMAT Idioms | "Being" is not the enemy | WTF is "that" doing in my sentence?

Reading Comprehension, Critical Reasoning, and other articles & resources
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November webinar schedule

Kudos [?]: 1902 [0], given: 454

Re: GMATPREP ChallengeQ -Many people believe that because wages   [#permalink] 19 Oct 2017, 21:31

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