Labor as an important resource and production factor in firms

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. 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.

At the same time, if Wal Mart purchased directly from the manufacturer, the product would still count towards that country's GDP. This is because it has to be exported out of the region to another location. Once this take place is when it is automatically applied to the country's GDP. (Mishra, 2009)

Based on the economic indicators studied in this module, what are your forecasts for Wal Mart in terms of profit, employment, and production.

In the next three years, Wal Mart is expected to see revenues increasing from $444 billion to $493.11 billion. The below table is illustrating these projections during this period.

Revenue Projections for 2013 and 2014

Year

Revenues

2012

$444.00 billion

2013

$472.17 billion

2014

$483.11 billion

("Wal Mart," 2012) ("About Us," 2012)

At the same time, the firm indicated that they are going to increase hiring in the 12 new stores that they are opening this year. Moreover, there have been a number of critical activities outsourced to India (in an effort to reduce costs). As a result, the impact of these actions is that Wal Mart can maintain their low cost structure during this challenging economic environment. The combination of these factors means that productivity is expected to increase by about 8%. ("Wal Mart," 2012) ("About Us," 2012)