Question

In: Economics

Explain how the following events may affect the profit rate for a U.S. firm and industry...

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

Solutions

Expert Solution

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.


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