6. Over the past decade, there have been major strikes and demonstrations by fas

Question

6. Over the past decade, there have been major strikes and demonstrations by fast food workers in cities across the United States, many of them financed by the Service Employees International Union (SEIU). Using the analytics of Marshall’s Rules of Derived Demand, discuss whether or not unionizing fast food workers is likely to be successful. (Where successful means higher wages with little employment loss.) I will inform you that previous studies have found that consumers of fast food are quite responsive to price changes (A recent meta analysis found that the elasticity of demand estimate for “food away from home” is quite high—on the order of 0.8. Intuitively this makes sense as there are many substitutes for fast-food that would suggest a high demand elasticity for products in this industry.) If you do not know a relevant piece of information make an educated guess or state what would be the ideal case for fast food workers. Be sure to discuss all 4 elements that determine the elasticity of demand. (3 pts)

Explanation / Answer

In economics, the Hicks-Marshall laws of derived demand assert that other things equal, the own-wage elasticity of demand for a category of labor is high under the following conditions:

*When the price elasticity of demand for the product being produced is high (scale effect). So when final product demand is elastic, an increase in wages will lead to a large change in the quantity of the final product demanded affecting employment greatly.
*When other factors of production can be easily substituted for the category of labor (substitution effect).
*When the supply of other factors of production is highly elastic (that is, usage of other factors of production can be increased without substantially increasing their prices) (substitution effect). That is, employers cannot easily replace labor as doing so will lead to a large increase in other factor prices making it useless.
*When the cost of employing the category of labor is a large share of the total costs of production (scale effect).

Thus under all the condition, if fast food workers are unionized, then there will be a rise in the price of food. And due to the high elasticity of demand, it will be a great loss on the part of the company.

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