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Wage Increase and Firm's Profitability


Discuss whether or not an increase in wages will reduce a firm's profit.


Firm Behavior and Strategies

Preview Answer


I. Introduction
- Brief explanation of the topic
- Thesis statement

II. Reasons why an increase in wages might reduce a firm's profit
- Higher wage bill
- Increase in labour costs per unit
- Increase in costs of production
- Prices will rise
- Revenue may fall if demand is elastic

III. Reasons why an increase in wages might not reduce a firm's profit
- Preventing strikes can reduce costs of production
- Higher wages can motivate workers and increase productivity
- Easier recruitment of skilled workers can raise productivity and increase profits
- Other costs may be falling
- Increasing demand for the firm's products can raise revenue
- Paying higher wages to a smaller labour force can reduce the wage bill
- Replacing workers with machines may leave costs unchanged

IV. Analysis of the arguments
- Comparison of the reasons why an increase in wages might reduce or not reduce a firm's profit
- Discussion of the impact of each reason on a firm's profit

V. Conclusion
- Restatement of the thesis statement
- Summary of the arguments presented
- Final thoughts on the topic

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