Economic Indicators 1. Labor is an important factor of production for all firms. The most recent unemployment rate is estimated at 7.7% (February 2013). Economists have identified three types of unemployment. Which type would affect your firm. Explain. According to Economists, there are three types of unemployment prevailing in the US…
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Frictional unemployment takes place when workers change or switch between different jobs. For example, change of job for better career prospects, change of interest in domain, transfer to different location of current job etc. Cyclical or seasonal unemployment means the workers remain employed only during specific seasons and unemployed for the rest of the year. It is inversely proportionate to the GDP rate. If the GDP rate decreases, then there will be an increase in the rate of unemployment. For instance, the outsourcing work during tax filing due dates alone shows cyclical unemployment. As per Bureau of Labor Statistics, the standard rate of unemployment is fixed as 6%. However, it increased to 7.7 % on Feb 2013, which is not a good sign for the US economy. In my perspective, frictional unemployment will affect my firm as it can happen unexpectedly on the interest of the experienced worker. This sudden change will affect the production and quality of work done by the newly hired untrained workers. 2. Think about other employment issues such as outsourcing. Do you think your firm would benefit from outsourcing? If you chose a firm in which outsourcing is not feasible, you can still discuss the advantages (or disadvantages) of outsourcing. The common employment issues such as low paying and short term jobs, unemployment due to outsourcing for cheap labor, high federal tax and less allowance etc are mostly related to GDP. Apart from the employment issues, outsourcing will definitely benefit the firm in its growth and cost effectiveness. The other advantages of outsourcing are concentration by managers only on principal activities of business, reduction in fixed and variable costs of firm, forming a new pool of required skilled personnel, a better control in work and staff, solving difficult tasks with less cost, temporary job allocation without statutory benefits, less scare about the labor turnover ratio in a firm, improvement in talents of internal staff etc. If the disadvantages of outsourcing overlook the advantages, then there is risk in outsourcing work. The disadvantages might include the risk in quality of work done by the back office, fear of privacy and confidentiality of business, poor control over back office due to indirect management, no par with the turnaround time etc which affect the society as a whole in monetary terms etc. According to Olga Kharif, the demerit of outsourcing is mainly in terms of pressure from “lower-cost competitors” (USC's Center for Management Communication, 2006). Kharif further expresses that “US companies like the instant gratification of savings on wages. But as the real costs of IT outsourcing become apparent over time, many companies may come to realize that it is no panacea” (USC's Center for Management Communication). 3. If a U.S. firm hires foreign workers abroad, would these wages count in the U.S. GDP? (i.e. an Indian citizen working in a call center for Microsoft in India) Why or why not? The wages of foreign workers who are hired by a US firm are included in the US GDP. This is due to the fact that GDP is calculated by including earnings of foreign firms and residents in the United States as well as after excluding incomes earned abroad by US firms and residents. The international companies like Microsoft have no other option like hiring foreign workers wherever talents are required because the maximum GDP of US arise out of
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