Many people believe that because wages are lower in developing

Question

Many people believe that because wages are lower in developing countries than in developed countries, competition from developing countries in goods traded internationally will soon eliminate large numbers of jobs in developed countries. Currently, developed countries' advanced technology results in higher productivity, which accounts for their higher wages. Advanced technology is being transferred ever more speedily across borders, but even with the latest technology, productivity and wages in developing countries will remain lower than in developed countries for many years because developed countries have better infrastructure and better-educated workers. When productivity in a developing country does catch up, experience suggests that wages there will rise. 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. However, in a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages. Furthermore, if 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. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely.   1 
 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.

2 
 2. The primary purpose of the passage is to

(A) identify the origin of a common misconception
(B) discuss the implications of a generally accepted principle
(C) present information relevant in evaluating a commonly held belief
(D) defend a controversial assertion against a variety of counterarguments
(E) explain under what circumstances a well-known phenomenon occurs

3 
 When  productivity in a developing country does catch up , experience suggests that  wages there will rise . 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. However, in a developing country's economy as a whole,  productivity improvements  in goods traded internationally are likely to cause  an increase in wages . Furthermore,  if 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. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where  capital moves more freely . 
 3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?

(A) Advanced technology could move more quickly from developed countries to developing countries.
(B) Developed countries could compete more effectively for jobs with developing countries.
(C) A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency.
(D) A country's productivity could increase without significantly increasing the value of its currency.
(E) Workers could obtain higher wages by increasing their productivity.

GMATNinja · Accepted Answer

"In a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages." This implies that an increase in productivity should lead to an increase in wages. But "if wages are not allowed to rise, the value of the country's currency will appreciate." Thus, if wages do not rise as productivity increases, the value of the country's currency should grow. "In the past a few countries have deliberately kept their currencies undervalued" (that is, prevented the value of the country's currency from appreciating). However, this practice "is now much harder to do in a world where capital moves more freely." In other words, it is now much harder for a country to deliberately keep its currency undervalued because capital now moves more freely in the world. We can infer from this statement that "if the movement of capital in the world were restricted," that would make it easier for a country to deliberately keep its currency undervalued, even as productivity increases. Thus, "if the movement of capital in the world were restricted", it is likely that a "country's productivity could increase without significantly increasing the value of its currency." (D) is the best option. This passage is also discussed in the following thread: https://gmatclub.com/forum/many-people- ... fl=similar

AmoyV · Answer

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.  We are looking for avg productivity of the whole country. 
B. Wages are influenced by the extent to which labor unions have organized the country's workers.  No mention of labour unions in the passage 
C. Wages are not determined by productivity improvements in goods traded internationally.  We are looking for avg productivity of the whole country. 
D. The average productivity of the workers in the country has not risen.  Bingo. That is what the bracketed part in the 12th line says. 
E. The education level of the workers in the country determines wages.  We are looking for avg productivity of the whole country.

2. The primary purpose of the passage is to
A. identify the origin of a common misconception  Not discussing the "origin". Its more of a debunking of a misconception. 
B. discuss the implications of a generally accepted principle  Passages challenges the principle. 
C. present information relevant in evaluating a commonly held belief  Bingo. 
D. defend a controversial assertion against a variety of counterarguments  It takes an popular assertion and presents various counterarguments to debunk that assertion 
E. explain under what circumstances a well-known phenomenon occurs  Doesnt say anything about circumstances about a phenomenon. It presents cases when the "phenomenon" may not hold.

3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
A. Advanced technology could move more quickly from developed countries to developing countries.  Advanced technology might be better adopted in the developing country. 
B. Developed countries could compete more effectively for jobs with developing countries.  It doesnt say that 
C. A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency.  It has to increase its sophistication 
D. A country's productivity could increase without significantly increasing the value of its currency. Productivity=Avg wages*Currency Value. To increase productivity and keeping one constant, we need to increase the other factor. The passage seems to suggest that developing countries like to undervalue their currencies. So productivity can only be achieved by increasing wages. Close call. Lets put this aside for the moment. Doesnt sound exciting 
E. Workers could obtain higher wages by increasing their productivity.  Bingo. This can only be done by increasing avg wages if the country wants to keep the currency low (this can happen if the capital is restricted.

GMATNinja · Answer

Passage breakdown 
In the first sentence, the author  introduces a conventional view

Because wages are lower in developing countries, jobs in developed countries will be eliminated by competition with these developing countries.

Then, the author  explains why this conventional view may be mistaken

First, the author establishes that higher productivity leads to higher wages. 
 Then, he/she states that productivity will rise in developing countries, and therefore wages will rise.

For more on this process, check out  this article  and  our live RC videos .

Explanations for individual questions 
 
  Question 1  
 Question 2
 
  Part 1  
  Part 2    
 Question 3
 
  Part 1  
  Part 2

BlitzHN · Answer

D

Furthermore, if 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. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely

increased prod => higher wages or (lower wages and) appreciated currency (= dev'd country paying more for the goods)

currency undervalued => currency not appreciated == lower wages BUT AT HIGHER PRODUCTIVITY

D: A country's productivity could increase without significantly increasing the value of its currency

JarvisR · Answer

Updated time: Time taken 5 mins.

2. The primary purpose of the passage is to
C. present information relevant in evaluating a commonly held belief
"Many people believe that because wages are lower in developing countries than in developed countries, competition from developing countries in goods traded internationally will soon eliminate large numbers of jobs in developed countries. 
blah blah 
When productivity in a developing country does catch up, experience suggests that wages there will rise.
"

3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
D. A country's productivity could increase without significantly increasing the value of its currency.
"if 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. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely."

Having tough time with Q1.
Regards.

nishatfarhat87 · Answer

Hi E-gmat,

Q1. I have the below doubts:

Below is my understanding from the relevant section of the passage that:
1. Productivity increases in dev countries > Wages inc
2. If wages are not increased then the currency rate appreciates which is equivalent to increased wages
3. Because in a free flowing economy currency can't be undervalued 
Conclusion: currency rate could increase leading to increase in wages.

I do not understand how productivity is increasing with the increase in wage. Do we have reverse relationship here as per point 1. Please explain.

Q2. The first para talks about the factors that causes differences between the developing and developed countries.
The second para shares a chain reaction of how productivity and wage are interdependent on each other and how they define the wages along with some independent factors about currency appreciation and its effect on wages
Main point: The argument talks about factors causing the difference in wages between developed and developing countries.
Can you please help me how the argument reaches the abstract main point. I am unable to figure out.

egmat · Answer

Hi Nishat, Thanks for posting your doubt here. :-)

Reply for Q1. Take a look the the following excerpt from the passage: When productivity in a developing country does catch up, experience suggests that wages there will rise. 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. However, in a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages. Furthermore, if 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 . And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely . The passage states that in developing countries, when productivity increases, then wages increase too. But many developing countries have deliberately kept the wages low. When this is done, then the value of the currency of that nation increases. But if the capital is allowed to move freely, then productivity could increase, but that would not lead to the increase in the value of the currency pf that nation. Hence, Choice D is the correct answer. Reply for Q2. The opening sentence of the passage says: Many people believe that because wages are lower in developing countries than in developed countries, competition from developing countries in goods traded internationally will soon eliminate large numbers of jobs in developed countries . This is the point that the author elaborates upon. He goes on to say that technological advancements are catching up in developing nations that will lead to increase in productivity as well as wages. Hence, the developing countries will also have the same job opportunities as the developed nations. This is the reason why Choice C is the correct answer. Hope this helps. :-)

Thanks. Shraddha

culsivaji · Answer

The passage starts with a claim and then it goes on to explain by providing details that the way it's thought it's not actually so. And that's the primary purpose of the passage. Now let's dive in to the options

2. The primary purpose of the passage is to
A. identify the origin of a common misconception -->  There's no discussion of some origin or the root cause of anything. Chuck it out! 
B. discuss the implications of a generally accepted principle -->  There are no deductions or implications rather the passage explains details about a commonly held belief (evident from the first line : "many people  believe  that because wages..."). Chuck it out ! 
C. present information relevant in evaluating a commonly held belief -->  Perfect ! This option shows that passage tries to evaluate a commonly held belief by presenting details/explanations. Answer 
D. defend a controversial assertion against a variety of counterarguments -->  There is no controversy discussed as such. Chuck it out ! 
E. explain under what circumstances a well-known phenomenon occurs --> A well known phenomenon ? Simply chuck it out !

To answer the below question we need to understand the lines where the same has been mentioned.
 "However, in a developing country's economy as a whole, productivity improvements in goods traded internationally are likely to cause an increase in wages. Furthermore, if 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. And although in the past a few countries have deliberately kept their currencies undervalued, that is now much harder to do in a world where capital moves more freely."

So basically it says in a freely moving capital, if productivity increases, then wages increases, and subsequently currency value will appreciate. THe question asks us what happens if the capital is not freely movable ? Simple the question of currency appreciation/ depreciation is out of the picture. Productivity could increase without the significant increase in currency value.

3. The passage suggests that if the movement of capital in the world were restricted, which of the following would be likely?
A. Advanced technology could move more quickly from developed countries to developing countries. --> advanced technology is not discussed in the context of restricting/freely flowing capital
B. Developed countries could compete more effectively for jobs with developing countries. --> same here, no mention of jobs.
C. A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency. --> to some extent correct but then the term productivity is missing and also the sophistication of the technology is not discussed in the context of restricting /freely flowing capital.
D. A country's productivity could increase without significantly increasing the value of its currency. --> Bang on! This is what exactly we can deduce.
E. Workers could obtain higher wages by increasing their productivity. --> higher wages vs productivity exists even when currency appreciation is discussed.

VidyaIyengar · Answer

Wanted an explanation for the question "The passage suggests that if the movement of cpital in the world were restricted, which of the following would be likely ?"

Madhavi1990 · Answer

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!

zaidq1 · Answer

GMATNinja   GMATNinja Two

GMATNinjaTwo

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.

GMATNinja · Answer

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.

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!

GMATNinja · Answer

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, then that one firm could continue to pay low wages. This is exactly what choice (D) says.

I hope that helps!

tyildirim92 · Answer

GMATNinja

To me, major portion of the passage literally discusses circumstances in which an increase in wages in developing countries expected. Have a look at the bolded circumstances in the below excerpt.

To understand why C is correct, could you please emphasize the evaluation of a commonly held belief in the passage?

GMATNinja · Answer

Question 2 
 
When picking out the primary purpose of a passage, it is more important to understand  why  the author includes certain information, not just  what  they discuss in a "major portion" of the passage.

Here's a breakdown of the passage:

1) First, the author introduces a commonly held belief (lower wages in developing countries will lead to the loss jobs in developed countries)
2) Then, the author examines why wages are currently higher in developed countries, and says that they will remain so "for many years"
3) Finally, the author argues that wages will eventually rise in developing countries as well

So,  why  did the author write this passage? He/she introduced a commonly held belief and then weighed in on some factors underpinning that belief. Namely, the author thinks that developing countries will not maintain low wages in the long run. Because this wage disparity is a key component of the belief, the author implies that the belief may not come to pass, or at least will not have a permanent effect.

(C) captures this purpose well:

Take another look at (E):
 
There are a couple of issues with this answer choice. First, the passage doesn't deal with a "well-known phenomenon" -- that would imply that this loss of jobs definitely DOES happen. A "belief" is just something that people THINK happens.

In addition, the author doesn't say that the scenario that many people believe in actually  occurs , as stated in (E). If anything, the author implies that the belief is not entirely well-founded, because wages will eventually rise in developing countries.

(E) is out, and (C) is the correct answer to question #2.

I hope that helps!

Will2020 · Answer

GMATNinja Why B is wrong? tks!

GMATNinja · Answer

Question 2

Answer choice (B) for question 2 suggests that the primary purpose of the passage is to:
 
(B) runs into a similar issue as (E): can we say that something that "many people believe" is a "generally accepted principle"? Maybe, but it's not great. Many people these days believe that the world is flat, but that's hardly a "generally accepted principle." (B) is already in thin ice.

The other issue with (B) is that the passage doesn't focus on the  implications  of low wages in developing countries leading to the elimination of jobs in developed countries. Will the elimination of jobs lead to widespread poverty in developed countries? Or will it lead to an economic depression? Or some other outcome? We have no idea, because the author never touches on the potential implications of the "belief" defined at the beginning of the passage.

Instead, the author focuses on the facts and assumptions  underlying  the belief, and uses these to evaluate whether the belief is actually well-supported.

For these reasons, (B) is out and (C) is the answer to question 2.

I hope that helps!

GraceSCKao · Answer

Hi experts avigutman IanStewart I've checked all previous posts in this thread but would like to confirm one issue. Hope that you could share some of your thoughts when you have time.

I am curious when we see the word "could" in options, do we interpret it as "being able to do something" or "likely something could happen"? In some cases the difference between the two meanings does not prevent me from confidently eliminating or picking the options, but in some cases (in the third question), the difference bothers me. The option (D) is the correct answer. If "could" means "being able to do something," the option (D) would read: a country's productivity is able to increase without significantly increasing the value of its currency. But I am not sure whether it answers the question, because I think that it can be inferred that if the wage increases are allowed, the productivity can go up without increasing the currency value, regardless of whether the capital movement is restricted. (If the capital movement is free, the country has less chance of manipulating the currency value. If the capital movement is restricted, the country has better chance. But in both cases, if the wage increase are allowed, the productivity is able to go up and lead to a wage increase.) On the other hand, I agree that (D) answers the question if the word "could" means "likely." This way, the option (D) would read: a country's productivity might increase without significantly increasing the value of its currency. Yes such thing is possible, because a country has better chance of keeping the currency undervalued when the capital movement is restricted. Experts, what would you recommend me to do when I see the word "could" in options? I can check the two meanings to make sure I do not lightly eliminate options, but I am worried that this process might take much time. Meanwhile, could I confirm the reasons why (C) and (E) are incorrect? (C) A country's average wages could increase without significantly increasing the sophistication of its technology or the value of its currency. Is (C) incorrect because of the part colored in green? After all, the technology is not related to or involved in the discussion about capital movement or currency value change. I think if "could" means "likely" in the option (C), this option, without the technology part, would be similar to (D). (E) Workers could obtain higher wages by increasing their productivity. I feel that (E) itself is a not-bad inference from the passage, since if workers generally increase their productivity, the country's average productivity will rise and thus make the wage grow. By comparison, if (E) said "an individual worker could obtain higher wage...," it would be less ideal as a single worker cannot affect a country's average productivity, in normal sense. But, is (E) wrong because it does not really answer the question? In other words, is (E) incorrect because it says something true when the capital movement is free, and also true when capital movement is restricted? Thank you for your time. Thank you for helping me learn.

avigutman · Answer

Hi  GraceSCKao , I think you're overthinking this. Those two meanings never come into conflict, because if something has the agency (see definition #2  here ) to "be able to do something," then it's not a matter of something that has a chance of happening - it's not left to chance. There's some entity that will either be able to or will not be able to make it happen.
 
A country's productivity isn't able to do stuff.
 
Yes, I eliminate (C) because of the "sophistication of its technology" which doesn't come up in the context of countries "deliberately keeping their currencies undervalued" and I eliminate (E) for the same reason (it doesn't talk about what would happen if countries deliberately kept their currencies undervalued).

Many people believe that because wages are lower in developing

Prep Toolkit

Top 5 GMAT Debrief Videos

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards

GMAT Reading Comprehension (RC) Questions

Many people believe that because wages are lower in developing

Prep Toolkit

615 to 715 in 15 Days (Ria's Strategies)

More than Quant/Verbal Abilities: Speed vs. Accuracy

745 with Only Self-Prep and GMAT Club

From 555 to 765: 210-point Improvement

Perfect 805 Score Debrief by Julia

My Rewards