Subway: The Labor Market Demand for Labor

Subway: The Labor Market Demand for labor The most obvious source of an increase of a demand for labor by an organization is an increase in the demand for the product or service provided by the firm. In the case of Subway, the organization provides both a product (food) and service (food preparation). When demand for sandwiches increases, the need for more workers to take orders, make sandwiches, clean the premises and mange the store will also increase.

Another possible reason demand for labor might increase is a change in the types of goods and services offered. When Subway offered new types of sandwiches, such as hot hoagies or Panini, the more labor-intensive nature of such preparations may require an increase in workers (Carlinio n.d). Similarly, improvements in technology sometimes result in a decreased need for labor. Is labor a fixed or variable cost in the short run? What are the fixed costs of your firm? In the short run, labor is a variable cost at Subway.

Variable costs increase in direct proportion to the amount produced of a particular unit (Martland n.d). Worker turnover in the fast food business is very high, and a firm can quickly lay off or hire more workers, based upon consumer demand (Fast food careers, 2009, Kellogg Forum). Additionally, because Subways are largely staffed by minimum-wage workers who work part-time, managers can schedule workers for fewer hours if demand for the product begins to slacken and large portions of the staff are seen standing around, doing very little in the store.

Fixed costs, in contrast, must be paid regardless of the level of consumer demand. They would include the costs of keeping the facility open, such as electrical and heating costs. "Our rent, utilities, and other such overhead costs will be at a fixed rate regardless of how much your production increases (or decreases) throughout the year. Unlike variable costs, fixed costs pay for resources that cannot be quickly and easily changed to match the resources needed or used.

This really becomes an issue if production decreases to a level where you notice that your overhead is paying for unused production capacity" (Hallinan 2004). Ideally, the fewer fixed costs the better. The law of diminishing returns The law of diminishing returns means that after a certain point, with each additional unit added to the production process, that additional unit will yield a smaller return than the previous unit.

For example, having one employee in a Subway restaurant to take care of customers, make sandwiches, and keep the premises clean would mean that the production and service would be very slow, given the labor the worker was supposed to perform. A second employee who could make sandwiches while the other employee was taking orders would speed the production process considerably. A third employee who could assist in making hot sandwiches and serving non-sandwich foods like salads and soups would make the operation even faster.

However, after a certain point, a small store can only accommodate so many people, and if there are too many employees, gradually there will be little need to have the extra labor. The employees will be getting in one another's way, annoying one another and lowering morale, and the additional cost of wages and benefits will not justify the additional expenditure.

Part of good management and economic analysis demands that managers arrive at the exact point where the organization has enough labor on hand, but not so much that the additional units yield diminishing returns. The law of diminishing returns can be seen on a personal level in many areas of modern life, including in the consumption of Subway sandwiches. If Subway has a two-for-one sale, many people will feel motivated to purchase the sandwiches, because this means they have extra food, either for tomorrow's lunch or for additional family members.

Demand will increase because of the promotional offer. But after a certain point, if Subway keeps slashing the price, the incentive to buy for the customer will still diminish, because the customer will wish to allocate his or her income for other food or entertainment, and also because of the perishable nature of the food. How is wage determined in any market? Wages are determined by an interaction of demand, supply, and other external factors such as government regulations.

When demand for labor is high, workers can command a high price for their employment, as they can easily 'walk away' from an unsatisfactory job situation. In contrast, when supply is high, there are more workers vying for available positions than there are candidates, and employers can afford to offer lower salaries and fewer benefits, while still commanding the same quality of candidate.

Demand and supply vary on a macro level, between all industries, and also within certain industries and geographical locations, which may experience their own increases or decreases in demand and supply. Over time, demand and supply for labor theoretically 'even out,' given that people can move from one.