Labor, GDP and the Firm Labor Is Essay

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Labor, GDP and the Firm

Labor is an important factor of production for all firms. The most recent unemployment rate is estimated at 9% (January 2011). Economists have identified three types of unemployment. Which type would affect Wal Mart? Explain.

Fractional unemployment would have a major impact on Wal Mart. This is because the majority of Wal Mart's employees will receive salaries at minimum wage levels. In the event that someone quits, these individuals can easily be replaced (thanks in part to the high unemployment rate). The real danger is when the unemployment rate begins to decrease and more people are working in career orientated fields. This will make it difficult for Wal Mart to maintain their lowest cost structure. It is at this point that the company could be forced to pay higher forms of compensation for attracting and retaining employees. This is when the firm's profit margins will decrease from the tight labor markets. (Rampwell, 2010)

Moreover, structural unemployment is a secondary challenge that could have an impact on Wal Mart. This is because the introduction of technology will reduce the total number of employees working at each location. Over the course of time, this can result in a decrease in the workforce. (Rampwell, 2010)

Think about other employment issues such as outsourcing.

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Do you think Wal Mart would benefit from outsourcing? If you chose a firm which outsourcing is not feasible, you can still discuss the advantages (or disadvantages) of outsourcing.

Yes, outsourcing will provide Wal Mart with tremendous benefits. The way that this takes place, is they have a number of important functions performed in locations where the labor costs are cheap. This will reduce the total amounts of labor related expenses at the firm. When this happens, Wal Mart can then pass these savings on to their customers in the form of lower prices (which helps to improve their competitive position). (Mishra, 2009)

If a U.S. firm hires foreign workers abroad, would these wages count in the U.S. GDP? (i.e. A Chinese citizen working in a Nike factory in China) Why or why not?

No, the reason why is because the product was physically manufactured in another location. This would be applied to the GDP for that country, as the total amount of products they are exporting every single year. In the case of Wal Mart, they will purchase these products from whole sellers (once it has reached the U.S.). This allows them negotiate the lowest rates possible and increase their profit margins.

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