Competition Policy and Equilibrium Rate of Employment

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Competition Policy and Equilibrium Rate of Employment

Table of Contents

Introduction
The cost-effect
The competition effect
The location effect
Conclusion
References

Introduction

In any sound market, three factors might be considered important. These are the cost effect, competition effect, and location effect.

The cost-effect

The cost-effectiveness in most cases is related to the currency in use and its strength in the market. An example is the Euro advantages, which upon its use in most of the European countries have improved trade through a single currency in several countries. It would lower transactional costs that are usually created by the exchange rates in the market. It would therefore lower the nonwage costs and hence the PS curve would shift upwards.

The competition effect

The second factor as Ooghe explained is the competition effect. Firms on the global competition scale would turn to increase their international operations. Due to economies of scale, the reduced transaction costs would improve the market as well as enhance competition through many direct competitors. However, as well known, an increase in the product market competition would be an incentive for better mark up to the benefit of the consumer. Ooghe further explained that an increase in the competition would lead to an upward move on the price elasticity of a product directly related to demand. It would therefore mean that the PS curve would shift upwards while the real wage and employment would increase.

According to Dickens and Ferguson, firms would more certainly set prices according to how their rivals behave. It would most likely be according to their mark-up costs to the firm. In an imperfect market, the labor productivity level would be to large extent constant, and would not vary with the level of output. The marginal cost and marginal level of productivity would therefore be equal as Dickens and Ferguson, explained. However, at equilibrium in an imperfect labor market, the WS would be directly related to employment and in this case, the PS would be constant. At the point where the WS and PS intersect, this is an equilibrium rate of employment. However as earlier explained, an increase in the competition would lead to an upward move on the price elasticity of a product directly related to demand. It would therefore mean that the PS curve would shift upwards while the real wage and employment would increase. It, therefore, means that as Higgins, explained, companies would have to increase competition through various nonmonetary and no fiscal policies, which would induce the price elasticity in the market.

The location effect

Improving labor mobility as Higgin explained would be one of the best practices. Growth and development in individual skills, as well as technological growth, entails that the individuals would move upward the employment radar to more advanced companies with superior incentives as well as strong performance records. It would create an environment where individuals would compete upon themselves to attract the best incentives in the best companies. Ferguson and Dickens explain the effect of frictions of workers and companies in readjusting in the new market demands, such as the technological growth which might be considered as an element brought about by competition. This creates more employment cases below as others change their working positions due to tastes, preferences as well as career advancement as explained above.

Conclusion

Higgins in addition explained market-oriented training programs as a means through which companies would adjust to a specific market through impacting necessary skills to the workers. This is an aspect of competition where the company due to expansion programs would offer such programs thereby absorbing more people in employment vacancies.

References

Ferguson, F.R., and Dickens, T.W., 1999.Urban problems and community development. Boston: Brookings Institution.

Higgins, H.B., 1998. Employment without inflation. Upper Saddle River, NJ: Transaction Publishers.

Ooghe,H., 2000.The economic business consequences of the EMU: a challenge for governments, financial institutions and firms. New York: Springer-Verlag Berlin Heidelberg.

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