Week 5 Discussion 1

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Economics

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May 6, 2024

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There are moments in the market when consumers demand a high volume of a specific resource from an industry that it creates a demand for labor; this is referred to as derived demand. According to Amacher & Pate, “The demand for labor has three features that make it somewhat different from the demand for a product. The first is that the demand for labor is derived demand. A firm demands labor because the labor can be used to produce goods that consumers are demanding. The demand for labor is thus derived from the demand for the product the firm produces. If there were no consumer demand for products made from wood, there would be no demand for loggers. This principle holds for all productive resources. They are only valuable to a firm if they help produce products that consumers value.” (Amacher & Pate, 2019). This demand for labor is called derived demand because this labor is dependent on the high level of demand. In the labor market, a firm’s labor demand curve shows the projected demand for workers at various salary levels. According to Amacher & Pate, “Remember that a demand curve shows the relationship between price and quantity demanded. A demand curve for labor shows how much labor will be demanded at various wage rates.” (Amacher & Pate, 2019). Firms have less incentive to hire more labor because of the rise in labor demand wages. Traditionally this curve is a downward sloping curve because as a firm increases the number of employees, it decreases marginal productivity. In the labor market, the workers’ supply curve represents workers' willingness to work additional labor hours. As a labor’s wages increase, the labor is willing to increase their quantity of work hours to obtain more income. According to Amacher & Pate, “An individual’s supply curve of labor looks like the other supply curves we have considered. As wage rates rise, the quantity of labor supplied increases. This supply curve of labor, like most supply curves, is upward sloping. As wage rates rise, an individual will want to work more hours. In general, as wages rise, more people will choose to give up leisure in favor of more income.” (Amacher & Pate, 2019). Traditionally, this curve is an upward sloping curve because as an employee receives increased wages, they are willing to trade away leisure to gain income from additional labor hours. In a traditional labor market, a firm’s wage is normally determined by the demand of workers and the supply of those available workers. According to Amacher & Pate, “A profit-maximizing firm will employ additional labor until the cost of an additional unit is equal to the benefit, which is when the marginal product of labor is equal to the equilibrium wage.” (Amacher & Pate, 2019). Wages are essential for businesses of any size as they represent a high overhead cost. Therefore, wages can easily be influenced by the cost of living, minimum wage mandates, educational level, etc. Amazon had several goals when deciding to increase its labor wage well over the $7.25 federal minimum wage to $15 per hour. First, this increased wage would generate productivity from their employees. Secondly, this new rate would help retain and attract hard-working employees. Lower wages usually create positions with higher turnover rates. The Downside of Amazon raising their salaries is that it does add additional overhead cost, which is usually passed down to the consumers. The positive effect of Amazon raising its minimum wage is that it should increase the level of productivity of its employees. This move also draws positive public opinion about the company and thus could increase sales and revenue. This move could also influence other large corporations to step up and provide the same wage levels for their employees, thus providing more livable wages to the lower class.
The negative effect of Amazon raising its minimum wage is that the cost of increased wages is passed down to consumers and thus decreases sales and revenue. This move causing a chain reaction across other companies could cause the price of many different products, thus creating inflation. Although these employees are now earning more revenue, they are spending more money on everyday products. Resources: Amacher, R., & Pate, J. (2019). Principles of microeconomics (2nd ed.). Bridgepoint Education. Bernstein, J. (2018, October 7). Amazon's raise: Unequivocally good news (Links to an external site.)Links to an external site. . The Journal Gazette . http://www.journalgazette.net/opinion/columns/20181007/amazons-raise-unequivocally-good-news
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