In: Economics
Explain how the following events may affect the profit rate for a U.S. firm and industry (be sure to define your measure(s) of the profit rate) :Consider both the immediate impact and the possible long run implications: (1) across firms within an industry; (2) across industries and (3) across nations
please long and mindful answers that covers all three categories.
a) Unionization of a firm |
b) Tariffs on steel imports |
c) Increase in low-wage workers in the labor force |
d) Increase in the minimum wage in New York State |
a) Unionization is the formation of a group of labors which acts
as an intermediary between the management and the labors.
The union speaks on behalf of the labors and negotiates for
employee rights, better wage rates, and better working
conditions.
This is considered to be positive in the developing countries where
labor laws are redundant but generally, it is a negative factor for
the business in any industry and to the nation.
Unions demand a higher wage rate than the market rate and that
increases the cost for the business. Further, management needs to
negotiate about layoffs or pay-related issues with the union which
means a considerable loss of power for the management and it also
increases the cost of litigation and arbitration.
Overall, it is negative for a mature economy like the US.
b) Tariffs are considered completely wrong in the open or
market-based economy because it indicates protectionism. The
imposition of tariffs distorts the market demand and erodes
consumer welfare.
The firms in the US steel industry will benefit from such tariffs
as it will make the import costly and the US consumers will buy
from the domestic steel companies.
The industries which need the steel as raw material will be at a
loss because they will have to buy at a higher cost and that will
impact their bottom line.
The nation will also witness this as a negative because a higher
price of steel will affect domestic companies and passing that cost
on to the consumers means a welfare loss.
c) The firms are constantly looking to cut the cost which has lead the shifting of jobs from the US to the low wage countries like China. If the US experiences an increase of low wage workers in the labor force then it will benefit the firms in the industry. If the phenomenon is witnessed across the industries then it will lower the operating cost and that will improve the bottom line. The nation will also benefit because of this as a lower-cost production will translate into higher consumption and higher output in the economy.
d) The minimum wage is the concept that is supposed to benefit
the workers but it has unintended effects and that is very much
negative. If the New York state increases the minimum wage then the
firms which are in New York will be at a disadvantage because they
will have to bear higher labor cost.
The industries which are operating in the New York state will also
face higher input cost in the form of increased labor cost and they
will either shift out of the state or to any other destination with
lower cost. For example, if the service industry is more dominant
in the NewYork state then they will see an increased cost and might
shift their facilities to adjacent states.
The impact on the nation will depend upon the share of the New York
state in the nation's economy. A small share will not affect the
economy as a whole materially or significantly. However, if the
share is quite large then it could affect the nation marginally
because the firms and industry will relocate to other states.