Final answer:
Although increased labor productivity and economic growth traditionally lead to higher wages, this is not always the case. Automation can raise productivity without increasing labor demand, and the distribution of productivity gains can favor capital over labor. Mismatched expectations regarding productivity and wage increases can also contribute to unemployment when productivity gains stall.
Step-by-step explanation:
Traditionally, it is expected that labor productivity and economic growth contribute to increased wages. However, this may not always be the case. One instance where increased productivity does not lead to increased wages could occur when automation is implemented within a business or industry. Here, productivity may rise because machines efficiently perform tasks previously done by humans, but the overall demand for labor does not increase, possibly due to a lack of new industries absorbing the displaced workforce.
Another scenario is when the benefits of increased productivity go primarily to capital rather than labor. This situation can lead to wage stagnation or even decrease for workers despite rising productivity. Additionally, if productivity increases are expected and wages are set to follow, but then the productivity gains suddenly stop without a corresponding adjustment in wage expectations, this mismatch can lead to unemployment, as wages continue to rise out of step with productivity. This concept is related to the economic theory of diminishing marginal productivity, wherein after a certain point, each additional unit of labor adds less output than the previous unit.
Therefore, while automation and increased productivity can theoretically benefit the labor market by creating higher wages, various factors such as the distribution of productivity gains, market expectations, and the dynamics of supply and demand for labor can lead to situations where this positive correlation is not observed.