The sometimes very large differences in living standards among countries around the world can be explained by differences in productivity.

Productivity is the amount of goods and services that can be produced for each unit of labor input. Countries with high productivity, in which workers can produce large amounts of goods and services, tend to have higher standards of living. On the other hand, countries with low productivity, where workers produce relatively fewer goods and services, often experience lower standards of living.

Other factors, such as minimum wage laws, labor unions, and welfare payments, all have much smaller effects on living standards than the productivity of a country's workers has.