FIN 34220 Lecture Notes - Lecture 3: Frictional Unemployment, Profit Maximization

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ochrecricket616

31 Aug 2016

School

Department

Finance

Course

FIN 34220

Professor

David Shepherd

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Document Summary

Ignore land fundamentally the availability of labor, capital, and technology. Fundamental things which limit what we can do in the economy. Differences in skill between people will be encapsulated in the technology term a, not in labor l. Units of labor are just hours of labor of people. Capital of the equipment of what"s available in the economy (units of capital) Can think of the us economy like a huge business. The economy is just all of the machinery equipment and offices we have now plus all of the people and the technology. The us workers either has more skills (a) or more equipment (k) If a business wants to produce more output, it has to hire more people and vice versa. Short run production direct relationship between output and employment. In the micro level, short run can run up to many years.

Related Questions

On Monday, May 26, Tina Brown walked into Innovative Patios to begin her new job as Payroll Manager. She was met by Julie Thornbury , President and major shareholder of the company. Julie got to the point: âGood, youâre here. I need a payroll plan by Friday. This place is a mess.

Yesterday I got a call from Human Resources & Skills Development Canada . He said we arenât filing ROEs. Do you know what they are?

Weâve got employees telling us that they get more tax deducted than their friends who earn the same amount. Jim, our production manager is barking that he should have a tax credit for his kid. Weâve been fined for sending in employee taxes late. I donât get it. I pay two people to run the administrative side of things and they mess things up.

I hear there are changes in the pipeline. I heard the federal budget, but I donât know if we will benefit or not. Will it be just more paperwork? The bottom line is that I donât want any more government types coming around here threatening me. Tell me what we have to do.â

Company History

Innovative Patios is a private corporation that installs patios stones made from recycled material. The company was started twenty years ago by Julieâs parents Elena and Seamus. Elena and Seamus were immigrants to Canada and earned a living through a small landscaping business. They hired workers on contract and paid in cash for many years until they were audited by the tax department.

To avoid further problems, they incorporated the company five years ago, put their workers on the payroll and hired Mary as a bookkeeper to fill out all the government forms.

Payroll Department

Mary quickly became Innovative Patiosâ office manager, human resources manager, financial administrator and payroll manager. The workload was overwhelming and she convinced Julie to hire Liza to help her. Liza suggested they use Quicken to keep track of all accounts including payroll.

Mary and Liza fill out all cheques by hand for the ten employees and fill out all the government forms by hand. The companyâs remittances are based on a checklist Mary developed in 2009 (See Exhibit), Mary is unhappy because she works very hard, but everyone complains about things being wrong. When Julie landed a large contract that would require 15 more people be hired, Mary recommended that Julie hire a professional payroll manager. âI can handle the other stuff, but the Canada Revenue Agency and the employee complaints are driving me crazy. I just canât keep up. I will be as helpful as I canâ.

Julie led Tina to her office and rushed off to take care of a crisis on the loading dock. Before Tina could get settled, Mary walked in, âIâm so happy to meet you. Just tell me what you need and Liza and I will get it for you. The employees are paid bi-weekly and this Wednesday is a payday. I havenât prepared anything

because I knew you would be here.

Exhibit: Maryâs 2009 Remittance list

Item	Amount	How much to remit	When
Payroll	Annual $500,000	$1,000 payroll remittance	Monthly Pay balance plus interest when assessment arrives
CPP	4.95% earnings (to annual max)	$2,062.50	Monthly
EI	1.98% earnings (to annual Max)	$49,000	Year -end
GST	Net annual subject to HST $200,000 at 13%	$1,500	Monthly Use refund to go toward payroll remittances due

Please answer the following questions:

a) Who are the key stakeholders in this case?
b) What are the resources needed?
c) What resources are available?
d) What is the main issue in this case?

Thank you in advance!

I need a diferent point of view and someones opinion on this article.

Reforming the U.S. system of collective bargaining Collective bargaining procedures and relationships between labor and management must reflect less conflict, more cooperation as the Nation's economy struggles to meet international competition and domestic needs D. QUINN MILLS Rules as a productivity drain Rules alone cannot ensure that an organization will perform well. They may keep it from dissolving into self-defeating open warfare, but often do not permit it to achieve its potential. An organization which depends upon adherence to a myriad of rules will always be vulnerable to competition from other organizations which operate in a more consensual and cooperative fashion, even when the latter have fewer resources. And, although an organization of rules may sometimes pull it-self together to respond to an emergency, this need not necessarily occur. It follows, then, that primary dependence on establishing and enforcing rules is a very poor way to run an economic enterprise. The existence of a multitude of rules, many of which attempt to "stretch the work" to maintain jobs in ways reminiscent of depression-era tactics, constrains productivity and raises costs. For example, maintenance classifications may prohibit an employee from doing incidental work outside the strict limits of his or her trade; multiple job classifications may exist even where a person in a single combined classification could do the work effectively, without undue effort and stress; and, job classifications may be perpetuated although technological change has rendered the incumbents' work trivial. Other restrictions may limit the amount of work a person may be assigned, such as permitting a mechanic to open only two flanges. The location of materials and inventory may be restricted by contract or past practice to retain jobs in now-inefficient areas of the plant. In some cases, rules may prohibit employees being assigned work during breaks, and simultaneously prohibit supervisors from doing the employees' work, so that emergencies occurring at coffee breaks or lunchtime cannot be legally handled under the agreement. Over time, rules tend to become increasingly costly and constraining as technology, materials, products, and other aspects of production change. Even rules which made great sense at first become out-of-date under changing conditions. But the rules are difficult to change, and particular employees may be further benefited the more outdated the rules become. Sometimes a company can pay a high price and "buy the rules out," or a union can persuade some workers to give up favored positions for the good of the membership as a group. But often, change cannot be accomplished without a bitter struggle between management and labor. Furthermore, the rule making process promotes a set of attitudes which are inimical to successful enterprise. The existence of the rulebook encourages both management and labor to assert their rights under the contract, rather than to attempt to work out problems. It gives rise to "shop-floor lawyers," rather than problem solvers. It fosters conflict and controversy. It undermines trust. To a large degree, it seems that unions have become captives of their origins. Born in adversity and conflict, they continued to act as opponents of management even when their strength had become much greater. In some instances, unions have created thickets of rules in which to immobilize management, just as spiders build webs to ensnare prey. But when the thickets of rules have crippled productivity, the unions have discovered themselves to be caught alongside management in the trap. Plants have declined in competitiveness, and jobs have been lost. The unions have discovered too late that a snare is no less a snare because they have set it themselves. A prescription for change In a recent survey conducted by the Harris organization, a majority of the general public professed the belief that unions contribute less than they once did to the growth and efficiency of business. Not surprisingly, only 15 percent of union leaders agreed with this judgment.' The need for unions to assist companies in the light of increased foreign competition is apparent to the public. To the inhabitants of the Snow Belt, it is similarly evident that unions should cooperate with local business to stem the outflow of industry and jobs to the South and West. Public perceptions of a productivity problem are supported by Bureau of Labor Statistics estimates, which show particularly sluggish growth in output per labor hour after 1973.3 Collective bargaining practiced primarily as rule making has become self-defeating for both unions and management. It interferes with management's efficient operation of the enterprise, and ensnares employees with legitimate grievances in a web of red tape. It also contributes to the vehemence of employer attempts to resist union organization drives. Study after study of U.S. managers has shown that managers fear the imposition of restrictive work practices far more than the higher wages and benefits which unionization may bring. Companies' efforts to make competitive operations out of older plants often fail because changes in current work rules take the form of additional complex rules which do not provide the flexibility needed to turn a facility around. What management really needs is fewer rules altogether, and willing cooperation from the work force. The union, for its side, needs a management sensitive to the needs of people. Both are very difficult to obtain in the U.S. labor relations environment.

taupefrog166

Short Story

Our efforts to materially increase the normalized earnings of Berkshire will be aided â as they have been throughout our managerial tenure â by Americaâs economic dynamism. One word sums up our countryâs achievements: miraculous. From a standing start 240 years ago â a span of time less than triple my days on earth â Americans have combined human ingenuity, a market system, a tide of talented and ambitious immigrants, and the rule of law to deliver abundance beyond any dreams of our forefathers.

You need not be an economist to understand how well our system has worked. Just look around you. See the 75 million owner-occupied homes, the bountiful farmland, the 260 million vehicles, the hyper-productive factories, the great medical centers, the talent-filled universities, you name it â they all represent a net gain for Americans from the barren lands, primitive structures and meager output of 1776. Starting from scratch, America has amassed wealth totaling $90 trillion.

Itâs true, of course, that American owners of homes, autos and other assets have often borrowed heavily to finance their purchases. If an owner defaults, however, his or her asset does not disappear or lose its usefulness. Rather, ownership customarily passes to an American lending institution that then disposes of it to an American buyer. Our nationâs wealth remains intact. As Gertrude Stein put it, âMoney is always there, but the pockets change.â

Above all, itâs our market system â an economic traffic cop ably directing capital, brains and labor â that has created Americaâs abundance. This system has also been the primary factor in allocating rewards. Governmental redirection, through federal, state and local taxation, has in addition determined the distribution of a significant portion of the bounty.

America has, for example, decided that those citizens in their productive years should help both the old and the young. Such forms of aid â sometimes enshrined as âentitlementsâ â are generally thought of as applying to the aged. But donât forget that four million American babies are born each year with an entitlement to a public education. That societal commitment, largely financed at the local level, costs about $150,000 per baby. The annual cost totals more than $600 billion, which is about 31â2% of GDP.

However our wealth may be divided, the mind-boggling amounts you see around you belong almost exclusively to Americans. Foreigners, of course, own or have claims on a modest portion of our wealth. Those holdings, however, are of little importance to our national balance sheet: Our citizens own assets abroad that are roughly comparable in value.

Early Americans, we should emphasize, were neither smarter nor more hard working than those people who toiled century after century before them. But those venturesome pioneers crafted a system that unleashed human potential, and their successors built upon it.

This economic creation will deliver increasing wealth to our progeny far into the future. Yes, the build-up of wealth will be interrupted for short periods from time to time. It will not, however, be stopped. Iâll repeat what Iâve both said in the past and expect to say in future years: Babies born in America today are the luckiest crop in history.

Americaâs economic achievements have led to staggering profits for stockholders. During the 20th century the Dow-Jones Industrials advanced from 66 to 11,497, a 17,320% capital gain that was materially boosted by steadily increasing dividends. The trend continues: By yearend 2016, the index had advanced a further 72%, to 19,763.

American business â and consequently a basket of stocks â is virtually certain to be worth far more in the years ahead. Innovation, productivity gains, entrepreneurial spirit and an abundance of capital will see to that. Ever-present naysayers may prosper by marketing their gloomy forecasts. But heaven help them if they act on the nonsense they peddle.

Question:
Describe Buffettâs reasons for optimism about America and its economy.

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FIN 34220 Lecture Notes - Lecture 3: Frictional Unemployment, Profit Maximization

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