Industries in the country of Technologia invest in latest equipment that annually enhance productivity of private workers by three percent. Government employees do not profit from same technical advances.
1. If wages in the private sector are set eqivalent to the value of the marginal product, how much will they increase yearly?
2. Government workers annually get increases so that wages remain comparable to those in the private sector. What happens to the price of public services relative to privately produced goods?
3. If the similar quantity of public services is produced every year, what happens to the size of the government (measured by spending)?