There has been widespread reporting of a credit crunch among businesses in the past several months. This has a lot to do with how firms decide to “invest” going into the future. I would like you to think about how the inability to access credit at a low cost has changed the way businesses are deciding how much capital to “rent” and how much labor to hire. Fundamentally, what does the interest rate that firms borrow at have to do with how much labor they hire in the short run and the long run?
The National Federation of Independent Businesses (NFIB) releases surveys monthly on the expected behavior of firms in the near future. You might examine one of these surveys to see how firms are reacting to things like the “credit crunch” or inflationary expectations. Are firms able to raise their prices now while we are in a credit crunch?
Questions you might try to answer:
What does the borrowing interest rate have to do with capital/labor ratios?
How are firms reacting to this shortage of credit?
What can employees expect firms to do in the near/long term with regard to hiring practices?
Would you expect low- or high-skilled labor to benefit (or be harmed) by these changes?
Remember… I would like your statements to be as subjective as possible, or in jargon terms, positive and not normative in nature. Also, remember, I want you to keep your descriptions short, basic, and related to classroom content. Read other students comments before posting, and please leave your name with your posting.