December 18, 2018 in Business
Positive and negative impacts of building a new firm to the market

Many people have experience with markets every time when they spend money on buying goods and services. Market is formed in a place where buyers can meet sellers who provide something that they want. Negotiation takes place in to determine the quantity of funds that the buyer is willing to pay the seller for the goods and services. The quantity of resources that the buyer is willing to purchase a product or a service is called the market price. Money is used as a medium of exchange in all economies (Upadhyaya, 2014). However, the market price will not guarantee happiness to all sellers and buyers who are willing to sell or buy their goods and services. Only buyers who can buy a particular product or service at the market price will be satisfied. On the other hand, only sellers who are satisfied with the profit will be willing to supply more commodities and services to the market. The ability of the buyers to buy products in the market will determine the demand while the supply is determined by the sellers’ ability to supply products and services. In the labor market, employers hire workers who in return receive salaries and wages as compensation. The level of wages or salaries that people receive is very critical. It will determine the purchasing power of a person (Riley, 2014). It is apparently clear that building a plant in a small region has both positive and negative impacts on the economy. It is anticipated that the organization will be a key boost to the economic development of that region. It will open up the town for infrastructure and other resources that add value to the plant. Besides serving the needs of the community, the plant will create employment for the local people. It will attract a large pool of the labor force from within and without the town. Many people will migrate to that town seeking for jobs. With, increase of labor supply in the town, there are consequences that might follow either negatives and positives. This paper will discuss positives and negative impacts of building a new firm to the labor market of a small town.

Let starts by understanding the question, how does labor market work? Understanding this question is important when it comes to answering labor market related questions. The labor market determines price for labor (The Labor Market, 2014). The price should reflect the ability and willingness of the workers to provide labor. It mostly occurs in a competitive market. In this market, employers are seeking for labor from workers and workers are looking for jobs. The wage rate in a competitive market is determined by labor demand from employer. If labor demand is high, the wages will increase while low demand for labor decreases the wage rate.

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Positive impacts of building a new firm to the labor market

The demand and supply of labor is determined in the labor market. The players involved in the employment market are employees and employers. Employees supply labor to organizations and in exchange they receive wages (Stengel, 2041). Building a plant in a small town would have the following effects in the labor market:

The new plant would increase labor demand in the town. Labor demand refers to the number of employees that the plant is willing to hire at the prevailing wage rate. The newly established plant requires hiring labor as a factor of production, therefore, increasing demand for labor in that town. The demand for labor would increase because the number of individuals who are available and able to work in that town would not increase immediately. Therefore, in the short-term, the demand for labor will be high. However, labor demand might decrease in the long-run because people might migrate to that town to provide their services. Therefore, this increases the number of people who are willing to provide their service to the company at the prevailing or even lower wage rate. 

There would be an improvement in the wage rates in the town. Building a plant would increase demand for labor in the short run. This is because the new established firm will require hiring new employees from the competitive market. There is usually an inverse liaison between the demand for labor and wage rates the plant will pay for each worker. Therefore, an increase in demand for labor will increase the wage rate. However, in the long run, wages and salaries might reduce. People from other regions are likely to be attracted to the high wages and salaries that the employers are willing to pay. Therefore, they are likely to migrate to the town increasing the supply of labor (Ray, 2014). When labor supply is greater than labor demand, the employer will reduce the amount of money that they pay for labor. 

The company would also increase the rate of employment in the town. Establishment of a new firm in a small town leads to increase in labor demand. The increased labor demand leads to an increase in the employment rate. This in return leads to the reduction of the unemployment rate in the town and economy as whole. High rate of employment in the town means that people would improve their standing of living. Therefore, more goods and services would be purchased. However, when the requirement for these commodities and services is high, business activities in the town will increase. Increasing business activities means that there would be more opportunities for people to create their jobs to meet the market demands.

The quality of products and services produced might improve. Labor demand also depends on how much value labor can add in the production (Joseph, 2014). Labor can add value if the products produced is of high quality. Productivity describes how workers contribute to the production process. The company will not be willing to hire workers who are not profitable that is they cannot contribute more than their wages or salaries. Therefore, workers that are more productive will be on high demand thus increasing their employment and wage rates. However, several factors might influence workers’ productivity. They include:

•    Working environment

•    Workers’ experience, health, skills, and attitudes

•    The quality and quantity of capital resources that they are working with

Most factors that affect workers’ productivity will also affect their willingness to supply their labor. For example, working environment that has a health risk, repetitive jobs would reduce the willingness of the worker to provide their labor. That is the reason why there are low-skill jobs that still pay well in the market.

Improve in the quality of labor is another impact that the new firm would cause. People who will be employed in the company acquire more experience and training. Training worker is critical to all industries because, and it provides workers with necessary skills that are required to perform a particular task. In addition, training is critical for workers to understand how to accommodate technological changes in their specialization. Therefore, training of workers means that the quality of labor will be improved (Starting a new business advantages and disadvantages, 2014).

Entry of a new firm to the town might improve the working environment. The town has competitive labor market where many employers who are bidding for the same labor. Therefore, employers ensure that workers receive their fair share of what they have produced. Workers who think that they are not reasonably compensated are free to move to other jobs. Dangerous workplace would reduce the willingness of workers to provide their services. Therefore, employers must improve the working condition in order to attract workers and keep the existing ones. Another decisive factor that the new firm will contribute is the increase of labor mobility in the town. Entry of a new firm to the market means that workers would widen their options regarding where to work. If they are satisfied with their current working environment, they can easily move to another working place. Therefore, labor will be flowing freely in the town.

Negative impacts of entry of a new firm to the labor market

Whenever a new company sets up shop in a new area there are bound to be a few complications associated with it. Building a new plant entails a lot of planning and capital, and if the company does not have enough funds, it can cause the project to stall and become a “white elephant”. Adverse impacts can range from social, technological and environmental issues. Social issues include land and culture. Land is the biggest social factor in building a factory. The construction company must find the ideal site to build their plant, and this can cause hostilities between them and the society. Territory is the main basis of the numerous conflicts in the world today because people and corporations are scrambling for resources found in the land. When a corporation commences building, their operations might require a temporary or permanent relocation of people to other areas. This is wrong because some companies do not care about them and do not even compensate them for the displacement. Displacing communities from their homes is not ethical, and before it is done, comprehensive consultations should be undertaken and a new place set for them to occupy. The company might bring foreign contractors to build the plant, and some of their customs might conflict with those of the community. Several of their customs might be considered taboo to the community, and this might cause hostilities between them.

The construction process might cause adverse effects to the community’s health. For example, still water might provide a breeding ground for mosquitoes, which would in turn increase the exposure to malaria. The plant might also cause the contamination of the water system within the community. Harmful chemicals and cement might enter the waterways such as rivers and dams and result in diseases or fatalities (National Geographic Freshwater 101: Pollution, 2014). When the plant has been completed, the harmful gas emissions can cause respiratory complications to the residents. Migrant workers might introduce new diseases or sexually transmitted diseases such as AIDS to the residents. The plant can also cause security concerns to the residents. For example, if the plant is an oil refinery, the community might live in fear of an oil spill or worse fire, which could cause huge damages to the community. Therefore, the management of the plant should make the community feel at peace through constantly informing them of the safety measures they have undertaken to protect them.

Technological effects include the introduction of uncouth behaviors such as pornography. Some of these foreign workers might have some strange fetishes and might introduce the young children to child pornography. Technology has its advantages, but it also has negative effects in equal measure. Environmental effects include pollution. The plant is bound to cause some harm to the environment during its building. Pollution comes in many forms namely gasses, noise, and water pollution (Causes, Effects and Solutions of Air Pollution, 2014). When the factory is in the process of being built, the heavy machinery makes lots of noises. The constructors might work through the night, and all that noise might deprive the community of their sleep, and it is bound to bring about problems in the future between them and the community (Causes and Effects of Noise Pollution, 2014). The plant might decide to dump some of their waste into the rivers and dams which are the primary sources of the community`s water, and it would result in health complications. The company building the plant might decide to outsource the workforce thus depriving the community of possible employment opportunities. The company should ensure that a significant percentage of the workforce of the workers belong to the community. It is a sign of good will, and this action can create a good relationship between them and the community.

When a company sets up shop in the community, the economic situation of that community is bound to improve. It is a good thing, however, with an improved economy, the cost of living is bound to go up. The cost of basic commodities, housing and services are bound to go up, and this might create a strain on the folks who do not have a means of employment. Therefore, the plant should find ways of improving the livelihoods of the community. The construction of the industry is bound to attract some unscrupulous individuals’ who are looking to benefit illegally. For example, some of these individuals might turn to threats, extortion, and theft so the company must provide adequate security for both the plant and the community as a whole. The company building the plant should acknowledge these threats and neutralize them without breaking any human rights violations. Some if these companies have no regard for human life, and they do not care what happens to the residents. Some of them swindle the residents of their belongings, land, and leave them out to dry. Therefore, it is imperative that the appropriate authorities keep these companies in check and monitor their activities.

If the new plant is successfully built and it becomes profitable, other companies might be interested to build and expand their businesses. Although it has its advantages, that many companies might create heavy traffic within the community because the community might not have the capabilities to accommodate that many people at once. The rush to build these plants might cause the depletion of the community’s resources. 


Labor market is the place where employees and workers interact with each other.  Workers provide labor in exchange for salaries and wages form the employees.  In this market, companies will compete to hire the best workers while workers will be competing for the best satisfying jobs. Workers, who are highly demanded in the labor market, earn competitive wages and salaries while those who skills are not highly demanded earn little salaries. Entering of a new firm to the market has both the negative and positive impacts to the labor market on the town. First, the employment rate would increase because there would be the creation of more jobs. The wage rate would also increase in the short run because employers will be competing for labor in the market thus increasing the demand for labor. However, in the long-run, more people would have migrated to the town lowering the demand for labor. Therefore, little demand causes wages and salaries to reduce. 


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