Essay Sample on Labor Economics

Introduction

The economy of any country can be prosperous and other times be harsh to its citizens. As a result of this, the economy can be as unpredictable as one day you may be living the American dream and the next day you are on the streets looking for a job. Many families have experienced this in the past years especially the times where the recession hit the American economy. The same experience is what happened to the Neumanns and the Stanleys. The two families are among hundreds of families in the United States who saw their American dream disappear in the blink of an eye. The challenges faced by the families during the hard economic times led to different outcomes for the two families which can be explained by the use of economic principles.

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Looking at the situation that Stanleys and the Neumanns went through, the recession that hit the US in 1991 changed their lives. As a result of the recession, the two Milwaukee families found their soul providers out of a job and in search for new ways of earning a living. All this was due to the change in the structure of the labor market. For Tony Neumann, he lost a well-paying at Briggs & Stratton that paid him $ 18 an hour plus benefits. The same thing happened to Claude Stanley who lost his job at AO Smith who used to pay him close to $ 20 an hour plus additional benefit. Both these companies were the heart and soul for many families in Milwaukee.

The recession forced companies to look for alternative measures for survival. It is sad how the recession forced AO Smith and Briggs & Stratton source for cheap labor from Mexico and other non-union states. More than forty thousand workers lost well-paying jobs as a result of market demands. The alternative was to work extra hard for jobs that paid a fraction of what they used to earn. The companies were forced to lay off workers as they could still maintain the same level of Marginal Product of Capital but at a cheaper rate. Substituting the union workers with non-union and cheap labor from Mexico provided the companies with a situation where they could maintain the same level of production with incurring fewer costs. In addition to maintaining the marginal product of capital, the income and substitution effect also had some effect on the residents in Milwaukee.

Moving on to the income and substitution effect, it dealt mostly with the purchasing power of consumers. About the income effect, the Stanleys and Neumanns had to spend less than before. Given that both Claude and Tony lost their jobs, they had to spend less for them to maintain their previous financial status. They resulted in allocating finances appropriately to more vital issues. The same occurs in the substitution effect. Substitution effect implies purchasing items that are cheaper than before. In such times, families may result in working more to have extra income.

Conclusion

Appropriate measures must be taken to ensure what happened to the Stanleys and Neumanns does not happen to anyone. Both the government and the citizens should be responsible for having a contingency plan to prevent similar incidents from happening in the future. From the government side, appropriate policies should be in place to ensure that people do not lose their work to cheap labor from outside the US. As for citizens, they should have alternative saving measures so that they are well off when another recession occurs in the future.