Abstract
Technology has greatly improved the efficiency of firms to deliver services to their clients in a more effective way. Automation of services has highly reduced the amount of labour required to carry out the services and hence reducing the overall cost of production. An increase in the wage rate and labour being a factor of production will mean an increase in the cost of production.
This also means there will be an increase in the supply of labour due to the high wage rate being offered, but since firms have the option of automating their services, they will computerize their services causing unemployment.
Economic Analysis of the Situation
Increased wage rate has the effect of increasing the cost of production and since firms are in the business to make profits, they will increase the prices of their products. An increase in the prices of goods will lead to a reduction in the amount needed in the market, which is in line with the law of demand (Melvin, & Boyes, 2002). The demand for labour is highly dependent on the productivity of the worker and since machines are more productive as compared to humans, firms are likely to automate their services.
This may increase the supply of the quantities being produced hence increasing the profits resulting from the sales. At higher wage rates, the demand for labour will be less than the lower rates. For an employer to be persuaded to employ additional workers, the wage rate must be lower to compensate for the fact that the extra worker adds less to total revenue than the previous one (Himmelweit, Simonetti, & Trigg 2001).
An inverse relationship between the wage rate and the number of people that firms employ exist. The higher the wage rate the lower the number of people employed. This is mainly to help reduce the cost of production. In addition, an enhancement of the wage rate augments the chance of cost of leisure, which may decrease the overall efficiency of the worker.
This shows that increasing the wage rate encourages firms to automate their services. Since automating services is more productive as compared to increasing employees, firms will not incur any loss and hence only the employees who lose their jobs will be on the losing end. The high number of the unemployed will increase the dependency ratio, which will significantly decrease the national income. Automating services is likely to reduce the total cost of production and this will benefit the firms.
This shows that increasing the wage rate will create problems rather than solutions in the employment sector. Firms can do without the workers because they have an option of automating their services but employees cannot do without their employers since they depend on them for income. Increasing the wage rate will increase the dependency ratio of the unemployed to the employed and hence policy makers should reconsider their decision (Saltsman, 2014).
The government should come up with other ways of improving the employment sector rather than increasing the wage rate, such as giving grants to the middle earners. Since technology is of more benefits to firms, it should be embraced by all the sectors involved. This explains the main reason why the organization has to ensure that it acquaints itself with the modern technology since it defines the success of the any firm.
References
Boyes, W. J., & Melvin, M. (2012). Microeconomics. Mason, OH: South-Western Cengage Learning.
Himmelweit, S., Simonetti, R., & Trigg, A. (2001). Microeconomics: Neoclassical and institutional perspectives on economic behaviour. London: Thomas Learning.
Saltsman, M. (2014). The employee of the month has a battery. Wall Street Journal, 1(30), 1-3.